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Position(s)

Nathan Zommer

Chairman of the Board, President and Chief Executive Officer

Uzi Sasson

Chief Operating Officer, Vice President of Finance, Chief Financial Officer and Secretary

Peter H. Ingram

General Manager of IXYS Semiconductor GmbH

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended March 31, 2007
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission file number 000-26124

IXYS Corporation

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		77-0140882 (I.R.S. Employer Identification No.)

3540 Bassett Street

Santa Clara, California 95054-2704

(Address of principal executive offices and zip code)

(408) 982-0700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

(Title of Class)

Securities registered pursuant to Section 12(g) of the Act:

Common stock, par value $.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o Accelerated Filer þ Non-accelerated Filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by reference to the last sale price on the Nasdaq Global Market on September 29, 2006 was approximately $215,770,807. For purpose of this calculation, shares held by directors and executive officers have been excluded because they may be deemed to be “affiliates.” This determination is used for convenience and is not conclusive for any purpose. The number of shares of the Registrant’s Common Stock outstanding as of May 24, 2007 was 32,542,641.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s proxy statement relating to its annual meeting of stockholders to follow its fiscal year ended March 31, 2007, to be filed subsequently — Part III.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that include, but are not limited to, statements concerning projected revenues, expenses, gross profit and income, the need for additional capital and the outcome of pending litigation. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. In some cases, these statements may be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms and other comparable expressions. These statements involve known and unknown risks and uncertainties that may cause our results, levels of activity, performance or achievements or our industry to be materially different than those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, but are not limited to, our ability to compete successfully in our industry, to continue to develop new products on a timely basis, cancellation of customer orders, and other factors discussed below and under the caption “Risk Factors” in Item 1A. We disclaim any obligation to update any of the forward-looking statements contained in this report to reflect any future events or developments.

PART I


Item 1.	*Business*

We are a multi-market integrated semiconductor company. We specialize in the development, manufacture and marketing of high performance power semiconductors, advanced mixed signal integrated circuits, or ICs, application specific integrated circuits, or ASICs, and radio frequency, or RF, power transistors and systems. Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 200 watts of power.

Our power semiconductor products have historically been divided into two primary categories, power MOS, or metal oxide silicon, and power bipolar products. Our power semiconductors are sold as individual units and are also packaged in high power modules that frequently consist of multiple semiconductor die. In our fiscal year ended March 31, 2007, or fiscal 2007, power semiconductors constituted approximately 72.6% of our revenues, which included 32.0% from power MOS transistors and 40.6% from bipolar products.

We design and sell ICs that have applications in telecommunications, display, and power management products. In fiscal 2007, ICs constituted approximately 19.7% of our revenues.

We also design and sell RF power devices that switch electricity at the high rates required by circuitry that generates radio frequencies.

IXYS’s power semiconductor products are used primarily to control electricity in:


	•	power conversion systems, including uninterruptible power supplies, or UPS, and switch mode power supplies, or SMPS, for applications such as communications infrastructure, including wireless base stations, network servers and telecommunication switching stations;

	•	motor drives for industrial applications, such as industrial transportation, robotics, automation, and process control equipment;

	•	plasma display panels;

	•	medical electronics for sophisticated applications, such as defibrillators and MRI equipment; and

	•	renewable energy sources like wind turbines and solar systems.

Our mixed signal ICs are used in telecommunications products, central office switching equipment, customer premises equipment, set top boxes, remote meter reading equipment, security systems, advanced flat displays, medical electronics, and defense aerospace systems. Our RF power devices are used in wireless infrastructure, industrial RF applications, medical systems and defense and space electronics.

We design our products primarily for industrial and business applications, rather than for use in personal computers or mobile phones. In fiscal 2007, our products were used by over 2,000 customers worldwide. Our major customers include ABB, Astec, Cisco Systems, Delta Electronics, General Electric, Guidant, Infineon, LG, Medtronics, Samsung and Siemens.

We were founded in 1983 and are incorporated in the state of Delaware.

Background

The worldwide demand for electrical energy is currently increasing due to:


	•	proliferation of technology-driven products that require electricity, including computers, telecommunications equipment and the infrastructure to support portable electronics;

	•	increased use of electronic content in traditional products such as airplanes, automobiles and home appliances;

	•	increased use of automation and electrical processes in industry and mass transit systems;

	•	the growth of the Internet and mobile telecommunications demand; and

	•	penetration of technology into developing countries.

Not only is demand increasing, but the requirements for electricity are also changing. Electronic products in all markets are becoming increasingly sophisticated, offering more “intelligence” through the use of microprocessors and additional solid-state components. The increasing complexity of such products requires more precisely regulated power quality and greater power reliability. In addition, the increasing costs of electricity, coupled with governmental regulations and environmental concerns, have caused an increased demand for energy efficiency.

Power semiconductors are used to provide the precisely regulated power required by sophisticated electronic products and equipment and address the growing demand for energy efficiency. In most cases, power semiconductors:


	•	convert or “rectify” alternating current, or AC, power delivered by electrical utilities to the direct current, or DC, power that is required by most electronic equipment;

	•	convert DC power at a certain voltage level to DC power at a different voltage level to meet the specific voltage requirement for an application;

	•	invert DC power to high frequency AC power to permit the processing of power through the use of substantially smaller electronic components; or

	•	rectify high frequency AC power from switch mode power supplies to meet the specific DC voltage and frequency required by an application.

The more sophisticated the end product, the greater the need for specially formatted, finely regulated power, and the greater the need for a high performance power semiconductor.

Power semiconductors improve system efficiency and reliability by processing and converting electrical energy into more usable, higher quality power. Specifically, our power semiconductors are used primarily in controlling energy in power conversion systems, including switch-mode power supplies and uninterruptible power supplies, and in motor drive controls. Switch-mode power supplies efficiently convert power to meet the specific voltage requirements of an application, such as communications equipment. Uninterruptible power supplies provide a short-term backup of electricity in the event of power failure. Motor drive controls regulate the voltage, current and frequency of power to a motor.

With the growth in telecommunications, data communications and wireless communications, the demand for analog and mixed signal ICs and RF power semiconductors has grown. Our mixed signal ICs address the interface between telecommunication and data communication components, both in the central office and in gateway applications, especially with the increased use of the Internet protocol, or IP. Our RF power semiconductors are used

in wireless infrastructure and in other microwave communication applications. Technical advancement in the communication industries is expected to drive the demand for higher performance semiconductors.

IXYS’s Strategy

We focus on meeting the needs of the high power, high performance segment of the power semiconductor market, serving it with our advanced power and IC technologies. We have diversified our business to introduce products into new markets, while stabilizing the business and providing sustained growth. We intend to continue building a leading position within our targeted segments of these markets by pursuing the following strategies:

Maintain technological focus on high power, high performance markets. Our technological expertise enables us to focus on the high power, high performance markets. Due to technological complexities, fewer industry players compete in these markets, resulting in a more favorable competitive environment for us. We believe our technological expertise differentiates us from most of our competitors. This expertise encompasses a wide range of scientific disciplines and technical capabilities, including physics, mechanical engineering, chemistry, circuit design, material science and packaging. Using our technological expertise, we continually strive to introduce innovative products.

Target rapid growth. We select the specific markets where we intend to compete by evaluating their potential growth, our ability to establish an advantage based upon our technological capabilities and the performance of competing products.

Focus on niche markets. We focus on niche markets that are not adequately addressed by our larger competitors. Our larger competitors are often not flexible enough to address niche markets and smaller customers. We focus on these markets and customers, providing them with products configured to meet their specific needs.

Continue to diversify markets, customers and products. We believe that diversifying the markets and customers we serve and the products we produce enables us to reduce the traditional cyclical effects of the semiconductor industry on our business. We have a significant market presence in Europe, North America and Asia, the three principal geographic markets for high performance power semiconductors. Moreover, our products are used in a broad range of applications, from communications infrastructure to industrial automation to medical electronics, thereby reducing our reliance on customers from any particular industry. Our product line spans a broad range of functionality and price, which allows us to provide an appropriate solution to most of our customers’ power semiconductor needs.

Pursue selective acquisition and investment strategies. We seek to access additional technological capabilities and complementary product lines through selective acquisitions and strategic investments, with the goal of integrating acquisitions into our business. For example, through the acquisition of Clare, Inc., we expanded our product offerings into the semiconductor segment of the market that replaces electromagnetic relays with solid-state relays, or SSRs. The semiconductor products acquired with Clare are capable of integrating a number of functions previously provided by discrete components into one package and include product applications such as modem interfaces to the Internet, cable set top boxes, and applications for voice over Internet protocol, or VoIP, as well as mixed signal application specific ICs, or ASICs, for the medical, flat display and military markets. Through the Microwave Technology acquisition, we substantially increased our RF power products, by acquiring a product line of gallium arsenide devices that are useful in the amplification or reception of RF in wireless, medical, defense and space applications.

Collaborate with select companies on product development. We seek to enter into collaborative arrangements with existing and potential customers in attractive end user markets in order to optimize our products for their use.

Optimize mix between internal and external manufacturing. We intend to continue using both internal wafer fabrication facilities and our external foundry relationships. We believe that our internal manufacturing capabilities enable us to bring products to market more quickly than would be possible if we were required to rely exclusively on external foundries, retain certain proprietary aspects of our process technology and more quickly introduce new process and product innovations through close collaboration between our design and process engineers. Our alliances with external foundries and assembly subcontractors allow us to substantially reduce capital spending and

manufacturing overhead expenses, obtain competitive pricing and technologies and expand manufacturing capacity more rapidly than could be achieved with internal facilities alone.

Power Semiconductors

Our power semiconductor products have historically been divided into two primary categories, power MOS transistors and bipolar products. Our power semiconductors are sold separately and are also packaged in high power modules that frequently consist of multiple semiconductor dies. In fiscal 2007, power semiconductors constituted approximately 72.6% of our revenues, which included about 32.0% from power MOS transistors and about 40.6% from bipolar products. In fiscal 2006, power semiconductors constituted approximately 76.0% of our revenues, which included about 36.4% from power MOS transistors and about 39.6% from bipolar products. In fiscal year 2005, power semiconductors constituted approximately 76.0% of our revenues, which included about 39.9% from power MOS transistors and about 36.1% from bipolar products.

Power MOS Transistors.

Power MOS transistors operate at much greater switching speeds, allowing the design of smaller and less costly end products. Power MOS transistors are activated by voltage rather than current, so they require less external circuitry to operate, making them more compatible with ICs controls. Power MOS transistors also offer more reliable long-term performance and are more rugged than traditional bipolar transistors, permitting them to better withstand adverse operating conditions. Our power MOS transistors consist of power MOSFETs and IGBTs.

Power MOSFETs.

A power MOSFET, or metal oxide silicon field effect transistor, is a switch controlled by voltage at the gate. Power MOSFETs are used in combination with passive components to vary the amperage and frequency of electricity by switching on and off at high frequency. Our power MOSFETs are used primarily in power conversion systems and are focused on higher voltage applications ranging from 60 to 1,700 volts.

IGBTs.

IGBTs, or insulated gate bipolar transistors, also are used as switches. IGBTs have achieved many of the advantages of power MOSFETs and of traditional bipolar technology by combining the voltage-controlled switching features of power MOSFETs with the superior conductivity and energy efficiency of bipolar transistors. For a given semiconductor die size, IGBTs can operate at higher currents and voltages, making them a more cost-effective device for high energy applications than power MOSFETs.

Since inception, we have developed IGBTs for high voltage applications. Our current products are focused on voltage applications ranging from 300 volts to 2,500 volts. Our IGBTs are used principally in AC motor drives, power systems and defibrillators.

Bipolar Products.

Bipolar products are also used to process electricity, but are activated by current rather than voltage. Bipolar products are capable of switching electricity at substantially higher power levels than power MOS transistors. However, switching speeds of bipolar products are slower than those of power MOS transistors and, as a result, bipolar products are preferred where very high power is required. Our bipolar products consist of rectifiers and thyristors.

Rectifiers.

Rectifiers convert AC power to DC power and are used primarily in input and output rectification and inverters. Our rectifiers are used in DC and AC motor drives, power supplies, lighting and heating controls and welding equipment.

A subset of our rectifier product group is a very fast switching device known as a FRED, or fast recovery epitaxial diode. FREDs limit spikes in voltage across the power switch to reduce power dissipation and electromagnetic interference. Our FREDs are used principally in AC motor drives and power supplies.

Thyristors.

Thyristors are switches that can be turned on by a controlled signal and turned off only when the output current is reduced to zero, which occurs in the flow of AC power. Thyristors are preferred over power MOSFETs and IGBTs in high voltage, low frequency AC applications because their on-state resistance is lower than the on state resistance of power MOSFETs and IGBTs. Our thyristors are used in motor drives, defibrillators, power supplies, lighting and heating controls and welding.

Integrated Circuits

Our integrated circuits address the demand for analog and mixed signal interface solutions in the communication and other industries, and include mixed signal application specific ICs designed for specific customers as well as standard products, and ICs for power management and control. ICs accounted for 19.7% of our revenues in fiscal 2007, 16.5% of our revenues in fiscal 2006, and 15.9% in fiscal 2005.

Solid State Relays.

We manufacture solid-state relays, or SSRs, that isolate the low current communication signal from the higher power circuit, while also switching to control the flow of current. Our SSRs, which include high voltage analog components, optocouplers and integrated packages, are utilized principally in telecommunication and video and data communication applications, as well as instrumentation, industrial control, and aerospace and automotive applications.

LCAS and DAA integrated products.

A line card access switch, or LCAS, is a solid-state solution for a switching function traditionally performed by electromagnetic devices. Our LCAS products are used in central office switching applications to enable data and voice telephony. Data access arrangements, or DAAs, integrate a number of discrete components and are principally used in analog data communications that interface with telephone network applications. Our Litelink^tm products are DAAs for applications such as VoIP, wired communication lines and set top boxes.

Application Specific Integrated Circuits.

We design high voltage, analog and mixed signal ASICs for a variety of applications. Applying our technological expertise in ASICs, we also design and sell application specific standard products. In this regard, we have developed a line of source and gate drivers for E ink and liquid crystal displays.

Power Management and Control ICs.

We also design and sell power management and control ICs, such as current regulators, motion controllers, digital power modulators and drivers for power MOSFETs and IGBTs. These ICs typically manage, control or regulate power semiconductors and the circuits and subassemblies that incorporate them.

RF Power Semiconductors

Our RF power devices switch electricity at the high rates necessary to enable the amplification or reception of radio frequencies. Our products include field effect transistors, or FETs, pseudomorphic high electron mobility transistors, or PHEMTs, and Gunn diodes. These products are principally gallium arsenide devices, which remain efficient at the high heat and energy levels inherent in RF applications.

Systems and Other Products

We manufacture and sell laser diode drivers, high voltage pulse generators and modulators, and high power subsystems, sometimes known as modules or stacks, that are principally based on our high power semiconductor devices. Additionally, we manufacture our proprietary direct copper bond, or DCB, substrates for use in our own semiconductor products as well as for sale to a variety of customers, including those in the power semiconductor industry. DCB technology cost-effectively provides excellent thermal transfer while maintaining high electrical isolation.

Products and Applications

Our power semiconductors are used primarily to control electricity in power conversion systems, motor drives, medical electronics and plasma display panels. Our ICs are used mainly to interface with telecommunication lines, to control power semiconductors and to drive medical equipment and displays. Our RF power semiconductors enable the amplification and reception of radio frequencies in telecommunication, industrial, defense and space applications. The following table summarizes the primary categories of uses for our products, some products used within the categories and some of the applications served within the categories.


Category	IXYS Products	End User Applications

Power Conversion Systems	FRED IGBT Module MOSFET Rectifier IC Driver	SMPS and UPS for: Wireless base stations Internet facilities Storage area networks RF generators
Motor Drives	FRED IGBT Module MOSFET Thyristor IC Driver	Automation Robotics Process control equipment Machine tools Electric trains
Medical Electronics	IGBT MOSFET Thyristor IC GaAs FET	Defibrillators Medical imaging devices Laser power supplies Ultrasound Hearing aids
Telecommunications	SSR LCAS GaAs FET DAA	Point-of-sale terminals Modems Set top boxes Wireless base stations Central office
Display	MOSFET IC driver	Plasma display panels E-books

We also sell our power semiconductor chips and DCB substrates to other power semiconductor companies for use in their modules.

Sales and Marketing

We sell our products through a worldwide selling organization that includes direct sales personnel, independent representatives and distributors. As of March 31, 2007, we employed 56 people in sales, marketing, and customer support and used 37 sales representative organizations and 9 distributors in North and South America and 97 sales representative organizations and distributors in the rest of the world. Sales to distributors accounted for approximately 47% of net revenues in fiscal 2007, 44% of net revenues in fiscal 2006, and 36% of net revenues in fiscal 2005.

In fiscal 2007, United States sales represented approximately 27.5%, and international sales represented approximately 72.5%, of our net revenues. Of our international sales in fiscal 2007, approximately 52.1% were derived from sales in Europe and the Middle East, approximately 41.4% were derived from sales in Asia and approximately 6.5% were derived from sales in Canada and the rest of the world. No one customer accounted for more than 10% of net revenues in fiscal 2007. For financial information about geographic areas for each of our last three fiscal years, see Note 13, “Segment and Geographic Information,” of our Notes to Consolidated Financial Statements, provided in Item 8 of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1. For a discussion of the risks attendant to our foreign operations, see “Risk Factors-Our international operations expose us to material risks,” provided in Item 1A of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1.

We market our products through advertisements, technical articles and press releases that appear regularly in a variety of trade publications, as well as through the dissemination of brochures, data sheets and technical manuals. Additionally, we participate in industry trade shows on a regular basis. We also have a presence on the Internet through a worldwide web page that enables engineers to access and download technical information and data sheets.

Research and Development

We believe that we successfully compete in our markets because of our ability to design, develop and introduce to the market on a timely basis new products offering technological improvements. We are a pioneer in technology with respect to higher power MOSFETs, IGBTs, SSRs, E ink and cholesteric driver ICs and direct-bonded substrates. While the time from initiation of design to volume production of new semiconductors often takes 18 months or longer, our power semiconductors typically have a product lifetime of years. Our research and development expenses were approximately $20.1 million in fiscal 2007, $17.5 million in fiscal 2006, and $18.6 million in fiscal 2005. As of March 31, 2007, we employed 104 people in engineering and research and development activities.

We are engaged in ongoing research and development efforts focused on enhancements to existing products and the development of new products. Currently, we are pursuing research and development projects with respect to:


	•	developing RF power MOSFETs and GaAs FETs;

	•	increasing the operating range of our MOS and bipolar products;

	•	developing new gallium arsenide products;

	•	developing high efficiency solar cells;

	•	developing higher power IGBT modules;

	•	developing power solid state relays;

	•	developing power management ICs based on our HVIC technology;

	•	developing Trench MOSFETs for automotive and portable equipment markets; and

	•	developing module products for automotive markets.

Research and development activities are conducted in collaboration with manufacturing activities to help expedite new products from the development phase to manufacturing and to more quickly implement new process technologies. From time to time, our research and development efforts have included participation in technology collaborations with universities and research institutions.

Patents and Other Intellectual Property Rights

As of March 31, 2007, we held 135 issued patents, of which 99 were issued in the U.S. and 36 were issued in international jurisdictions. We rely on a combination of patent rights, copyrights and trade secrets to protect the proprietary elements of our products. Our policy is to file patent applications to protect technology, inventions and

improvements that are important to our business. We also seek to protect our trade secrets and proprietary technology, in part, through confidentiality agreements with employees, consultants and other parties.

While we believe that our intellectual property rights are valuable, we also believe that other factors, such as innovative skills, technical expertise, the ability to adapt quickly to new technologies and evolving customer requirements, product support and customer relations, are of greater competitive significance.

We are currently engaged in patent litigation. See Item 3, “Legal Proceedings.”

Manufacturing and Facilities

The production of our products is a highly complex and precise process. We manufacture our products in our own manufacturing facilities and by utilizing external wafer foundries and subcontract assembly facilities. We divide our manufacturing operations into three key areas: wafer fabrication, assembly and test.

Wafer Fabrication.

We own an approximately 170,000 square-foot facility in Lampertheim, Germany at which we fabricate bipolar products and an approximately 83,000 square-foot facility in Beverly, Massachusetts, capable of manufacturing high voltage silicon on insulator ICs. We also lease an approximately 30,000 square foot facility in Fremont, California, where we manufacture our gallium arsenide RF power semiconductors, and an approximately 100,000 square foot facility in Chippenham, England where we fabricate very high power bipolar devices. We believe that our internal fabrication capabilities enable us to bring products to the market more quickly, retain certain proprietary aspects of our process technology and more quickly develop new innovations.

In addition to maintaining our own fabrication facilities, we have established alliances with selected foundries for wafer fabrication. This approach allows us to reduce substantial capital spending and manufacturing overhead expenses, obtain competitive pricing and technologies and expand manufacturing capacity more rapidly than could be achieved with internal foundries alone. We retain the flexibility to shift the production of our products to different or additional foundries for cost or performance reasons. Our product designs enable the production of our devices at multiple foundries using well-established and cost-effective processes.

Measured in dollars, we relied on external foundries for approximately 37.8% of our wafer fabrication requirements in fiscal 2007. We have arrangements with a number of external wafer foundries, three of which provide the wafers for power semiconductors. Our principal external foundry is Samsung Electronics’ facility located in Kiheung, South Korea. Our relationship with Samsung Electronics extends for more than two decades. We provide our foundries forecasts for wafer fabrication six months in advance and make firm purchase commitments one to two months in advance of delivery.

Wafer fabrication of power semiconductors generally employs process technology and equipment already proven in IC manufacturing. Power semiconductors are manufactured using fabrication equipment that is one or more generations behind the equipment used to fabricate leading edge ICs. Used fabrication equipment can be obtained at prices substantially less than the original cost of such equipment or the cost of current equipment applying the latest technology. Consequently, the fabrication of power semiconductors is less capital intensive than the fabrication of leading edge ICs.

For a discussion of risks attendant to our use of external foundries, see “Risk Factors-We depend on external foundries to manufacture many of our products,” provided in Item 1A of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1. For a discussion of risks attendant to our acquisition of substrates prior to wafer fabrication, see “Risk Factors-We depend upon a limited number of suppliers for our substrates, most of whom we do not have long term agreements with,” provided in Item 1A of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1. For a discussion of environmental risks attendant to our business, see “Risk Factors-We may be affected by environmental laws and regulations,” provided in Item 1A of this Annual Report on Form 10-K, which information is incorporated by reference into this Item 1.

Assembly.

Packaging or assembly refers to the sequence of production steps that divide the wafer into individual chips and enclose the chips in external structures, called packages, which make them useable in a circuit. Discrete manufacturing involves the assembly and packaging of single semiconductor, or die, devices. Module manufacturing involves the assembly of multiple devices within a single package. SSR products involve multiple chip assembly on a specialized lead frame. The resulting packages vary in configuration, but all have leads that are used to mount the package through holes in the customer’s printed circuit boards.

Most of our wafers are sent to subcontract assembly facilities. We use assembly subcontractors located in Asia and Europe in order to take advantage of low assembly costs. Measured in dollars, approximately 63% of our products were, during fiscal 2007, assembled at external assembly facilities, and the rest were assembled in our Lampertheim, Chippenham and Fremont facilities.

Test.

Generally, each die on our wafers is electrically tested for performance after wafer fabrication. Following assembly, our products undergo testing and final inspection, either internally or externally, prior to shipment to customers.

Competition

The semiconductor industry is intensely competitive and is characterized by price competition, technological change, limited fabrication capacity, international competition and manufacturing yield problems. The competitive factors in the market for our products include:


	•	proper new product definition;

	•	product quality, reliability and performance;

	•	product features;

	•	timely delivery of products;

	•	price;

	•	breadth of product line;

	•	design and introduction of new products;

	•	market acceptance of our products and those of our customers; and

	•	technical support and service.

We believe that we are one of a limited group of companies focused on the development and marketing of high power, high performance semiconductors capable of performing all of the basic functions of power semiconductor design and manufacture. Our primary power semiconductor competitors include Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, and Toshiba. Our IC products compete principally with those of Agere Systems, Legerity, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices.

Backlog

At March 31, 2007, our backlog of orders was approximately $105.2 million, as compared with $81.3 million at March 31, 2006. Backlog represents orders expected to be shipped within the 12 months following March 31, 2007.

Our trade sales are made primarily pursuant to standard purchase orders that are booked months in advance of delivery. Generally, prices and quantities are fixed at the time of booking. Backlog as of a given date consists of

existing orders from our customers. Backlog is influenced by several factors including market demand, pricing and customer order patterns in reaction to product lead times.

We sell products to key customers pursuant to contracts that allow us to schedule production capacity in advance and allow the customers to manage their inventory levels consistent with just-in-time principles while shortening the cycle times required to produce ordered product. However, these contracts are typically amended to reflect changes in customer demands and periodic price renegotiations.

In the semiconductor industry, backlog quantities and shipment schedules under outstanding purchase orders are frequently revised to reflect changes in customer needs. Agreements calling for the sale of specific quantities are either contractually subject to quantity revisions or, as a matter of industry practice, are often not enforced. Therefore, a significant portion of our order backlog may be cancelable. For these reasons, the amount of backlog as of any particular date may not be an accurate indicator of future results.

Employees

At March 31, 2007, we employed 1,018 employees, of whom 104 were primarily engaged in engineering and research and development activities, 56 in marketing, sales and customer support, 791 in manufacturing and 67 in administration and finance. Of these employees, 137 hold engineering or science degrees, including 23 Ph.D.s. Certain employees at our Lampertheim and Chippenham facilities are subject to collective bargaining agreements. There have been no work stoppages at any of our facilities to date. We believe that our employee relations are good.

Other

Over the years, we have experienced a pattern, although not consistently, in our September and December quarters of reduced revenues or reduced growth in revenues from quarter to sequential quarter because of summer vacation and year-end holiday schedules in our and our customers’ facilities, particularly in our European operations. In recent periods, we increased inventory to become responsive to customer demand for shorter lead times for the delivery of orders, in light of our customers’ desire to manage their inventories on a “just-in-time” basis.

Available Information

We currently make available through our website at http://www.IXYS.com, free of charge, copies of our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after submitting the information to the Securities and Exchange Commission, or SEC. None of the information posted on our website is incorporated by reference into this Annual Report. You can also request free copies of such documents by contacting us at 408-982-0700 or by sending an e-mail to investorrelations@IXYS.net.


Item 1A.	*Risk Factors*

RISK FACTORS

In addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our business and us. Additional risks not presently known to us or that we currently believe are not serious may also impair our business and its financial condition.

Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.

Given the nature of the markets in which we participate, we cannot reliably predict future revenues and profitability, and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter to quarter and year to year. For example, comparing fiscal 2002 to fiscal 2001,

net revenues fell by 25.6% and net income fell by 85.7%. Further, from fiscal 2002 to fiscal 2003 and from fiscal 2005 to fiscal 2006, net income in one year shifted to net loss in the next year. Some of the factors that may affect our quarterly and annual results are:


	•	the reduction, rescheduling or cancellation of orders by customers;

	•	fluctuations in timing and amount of customer requests for product shipments;

	•	changes in the mix of products that our customers purchase;

	•	loss of key customers;

	•	the cyclical nature of the semiconductor industry;

	•	competitive pressures on selling prices;

	•	damage awards or injunctions as the result of litigation;

	•	market acceptance of our products and the products of our customers;

	•	fluctuations in our manufacturing yields and significant yield losses;

	•	difficulties in forecasting demand for our products and the planning and managing of inventory levels;

	•	the availability of production capacity;

	•	the amount and timing of investments in research and development;

	•	changes in our product distribution channels and the timeliness of receipt of distributor resale information;

	•	the impact of vacation schedules and holidays, largely during the second and third fiscal quarters of our fiscal year; and

	•	the amount and timing of costs associated with product returns.

As a result of these factors, many of which are difficult to control or predict, as well as the other risk factors discussed in this Annual Report on Form 10-K, we may experience materially adverse fluctuations in our future operating results on a quarterly or annual basis.

Our gross margin is dependent on a number of factors, including our level of capacity utilization.

Semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. We are limited in our ability to reduce fixed costs quickly in response to any shortfall in revenues. If we are unable to utilize our manufacturing, assembly and testing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in higher costs and lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.

IXYS could be harmed by litigation.

As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. We have been sued on occasion for purported patent infringement and are currently defending such a claim. For example, we were sued by International Rectifier for purportedly infringing some of its patents covering power MOSFETs. The U.S. District Court awarded damages to International Rectifier of $6.2 million plus 6.5% of revenues from infringing products, by implication, after September 30, 2005 and interest. In addition, a permanent injunction against IXYS, effectively barring us from selling or distributing the allegedly infringing products, was issued by the U.S. District Court. We are appealing the damage award and the injunction. Our counsel inadvertently did not file the requisite notice of appeal following the entry of judgment within the required period. Although we believe that it is unlikely that we will be precluded from pursuing our appeal, we could be denied the opportunity to pursue our appeal. In January 2007, the Federal Circuit Court declined to issue a stay of the damage award and injunction. The judgment therefore became payable and the injunction enforceable. We cannot predict the final outcome of this litigation matter. An adverse outcome would

materially and adversely affect our financial condition, results of operations and cash flows. There can be no assurance that our accrual of $6.8 million is sufficient for any actual losses that may be incurred as a result of this litigation.

Additionally, in the future, we could be accused of infringing the intellectual property rights of third parties. We also have certain indemnification obligations to customers and suppliers with respect to the infringement of third party intellectual property rights by our products. We could incur substantial costs defending ourselves and our customers and suppliers from any such claim. Infringement claims or claims for indemnification, whether or not proven to be true, may divert the efforts and attention of our management and technical personnel from our core business operations and could otherwise harm our business.

In the event of an adverse outcome in any intellectual property litigation, we could be required to pay substantial damages, cease the development, manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license from the third party claiming infringement with royalty payment obligations by us. An adverse outcome in an infringement action could materially and adversely affect our financial condition, results of operations and cash flows.

In addition, our subsidiary, Clare Inc., was sued in a Superior Court in the state of Massachusetts in 2003 over a dispute between it and LoJack Corporation relating to a contract for the design, development and purchase of application specific integrated circuits and assemblies. On February 8, 2006, the jury found that Clare was liable for damages in the amount of $36.7 million. On July 20, 2006, the Superior Court reduced the damages award to $4 million.

Under Massachusetts law, a jury’s award is increased for pre-judgment interest. Pre-judgment interest was determined to be $2.1 million at the time of the entry of judgment on July 25, 2006. In addition, the Superior Court determined the attorney’s fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys’ fees and costs, at the rate of 12% per annum simple interest.

In August 2006, LoJack filed a notice with the Superior Court of motion to reconsider the judgment for the purpose of reinstating the full amount of the jury’s damage award. In September 2006, the Superior Court ruled against LoJack’s motion. LoJack and we have each appealed the judgment of the Superior Court. On April 13, 2007, the parties’ appeals were argued before the Appeals Court of Massachusetts. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. The appeals may take a year or more to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

We cannot predict the final outcome of this litigation matter. An adverse outcome would materially and adversely affect our financial condition, results of operations and cash flows. There can be no assurance that our accrual of $7.4 million is sufficient for any actual losses that may be incurred as a result of this litigation.

Semiconductors for inclusion in consumer products have short product life cycles.

We believe that consumer products are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than other types of products sold by our customers. Shorter product life cycles result in more frequent design competitions for the inclusion of semiconductors in next generation consumer products, which may not result in design wins for us.

In particular, in recent years we have sold semiconductors for inclusion in the plasma display panels of a small number of manufacturers. Plasma display panels are one of several technologies used for visual display in television. Should competition among the various visual display technologies for television adversely affect the sales of plasma display panels that incorporate our products, our operating results could be adversely affected. Moreover, our operating results could be adversely affected if those plasma display panel manufacturers that have selected our semiconductors for inclusion in their products are not successful in their competition against other manufacturers of plasma display panels. As plasma display panels cycle into next generation products, we must achieve new design wins for our semiconductors to be included in the next generation plasma display panels. New design wins may not occur.

Our international operations expose us to material risks.

During fiscal 2007, our product sales by region were approximately 27.5% in the United States, approximately 37.8% in Europe and the Middle East, approximately 30.0% in Asia and approximately 4.7% in Canada and the rest of the world. We expect revenues from foreign markets to continue to represent a significant portion of total revenues. IXYS maintains significant operations in Germany and the United Kingdom and contracts with suppliers and manufacturers in South Korea, Japan and elsewhere in Europe and Asia. Some of the risks inherent in doing business internationally are:


	•	foreign currency fluctuations;

	•	changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;

	•	trade restrictions;

	•	longer payment cycles;

	•	challenges in collecting accounts receivable;

	•	cultural and language differences;

	•	employment regulations;

	•	limited infrastructure in emerging markets;

	•	transportation delays;

	•	seasonal reduction in business activities;

	•	work stoppages;

	•	terrorist attack or war; and

	•	economic or political instability.

Our sales of products manufactured in our Lampertheim, Germany facility and our costs at that facility are primarily denominated in Euros, and sales of products manufactured in our Chippenham, U.K. facility and our costs at that facility are primarily denominated in British pounds and Euros. Fluctuations in the value of the Euro and the British pound against the U.S. dollar could have a significant adverse impact on our balance sheet and results of operations. We generally do not enter into foreign currency hedging transactions to control or minimize these risks. Fluctuations in currency exchange rates could cause our products to become more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. If we expand our international operations or change our pricing practices to denominate prices in other foreign currencies, we could be exposed to even greater risks of currency fluctuations.

In addition, the laws of certain foreign countries may not protect our products or intellectual property rights to the same extent as do U.S. laws regarding the manufacture and sale of our products in the U.S. Therefore, the risk of piracy of our technology and products may be greater when we manufacture or sell our products in these foreign countries.

The semiconductor industry is cyclical, and an industry downturn could adversely affect our operating results.

Business conditions in the semiconductor industry may rapidly change from periods of strong demand and insufficient production to periods of weakened demand and overcapacity. The industry in general is characterized by:


	•	alternating periods of overcapacity and production shortages;

	•	cyclical demand for semiconductors;

	•	changes in product mix in response to changes in demand;


	•	significant price erosion;

	•	variations in manufacturing costs and yields;

	•	rapid technological change and the introduction of new products; and

	•	significant expenditures for capital equipment and product development.

These factors could harm our business and cause our operating results to suffer.

Our operating expenses are relatively fixed, and we order materials and commence production in advance of anticipated customer demand. Therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls.

Our operating expenses are relatively fixed, and, therefore, we have limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, our operating results will be harmed if we do not meet our revenue goals.

We also typically plan our production and inventory levels based on our own expectations for customer demand. Actual customer demand, however, can be highly unpredictable and can fluctuate significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and production in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize. This risk has increased in recent periods. As our customers have increasingly demanded “just-in-time” deliveries that cannot be accommodated in the time required for a normal production cycle, we have increased our inventory produced in expectation of future orders. If anticipated demand fails to materialize, we may have to write down excess inventory, which would hurt our financial results.

We may not be able to acquire additional production capacity to meet the present and future demand for our products.

The semiconductor industry has been characterized by periodic limitations on production capacity. Although we may be able to obtain the capacity necessary to meet present demand, if we are unable to increase our production capacity to meet possible future demand, some of our customers may seek other sources of supply or our future growth may be limited.

We may not be successful in our acquisitions.

We have in the past made, and may in the future make, acquisitions of other companies and technologies. These acquisitions involve numerous risks, including:


	•	diversion of management’s attention during the acquisition process;

	•	disruption of our ongoing business;

	•	the potential strain on our financial and managerial controls and reporting systems and procedures;

	•	unanticipated expenses and potential delays related to integration of an acquired business;

	•	the risk that we will be unable to develop or exploit acquired technologies;

	•	failure to successfully integrate the operations of an acquired company with our own;

	•	the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;

	•	the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;

	•	the risks of entering new markets in which we have limited experience;

	•	difficulties in expanding our information technology systems or integrating disparate information technology systems to accommodate the acquired businesses;


	•	failure to retain key personnel of the acquired business;

	•	the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate policies, benefits and compliance programs;

	•	customer dissatisfaction or performance problems with an acquired company’s products or personnel;

	•	adverse effects on our relationships with suppliers;

	•	the reduction in financial stability associated with the incurrence of debt or the use of a substantial portion of our available cash;

	•	the costs associated with acquisitions, including in-process R&D charges and amortization expense related to intangible assets, and the integration of acquired operations; and

	•	assumption of known or unknown liabilities or other unanticipated events or circumstances.

We cannot assure that we will be able to successfully acquire other businesses or product lines or integrate them into our operations without substantial expense, delay in implementation or other operational or financial problems.

As a result of an acquisition, our financial results may differ from the investment community’s expectations in a given quarter. Further, if market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows, or stock price could be negatively impacted.

We depend on external foundries to manufacture many of our products.

Of our revenues for fiscal 2007, 37.8% came from wafers manufactured for us by external foundries. Our dependence on external foundries may grow. We currently have arrangements with a number of wafer foundries, three of which produce the wafers for power semiconductors that we purchase from external foundries. Samsung Electronics’ facility in Kiheung, South Korea is our principal external foundry.

Our relationships with our external foundries do not guarantee prices, delivery or lead times, or wafer or product quantities sufficient to satisfy current or expected demand. These foundries manufacture our products on a purchase order basis. We provide these foundries with rolling forecasts of our production requirements; however, the ability of each foundry to provide wafers to us is limited by the foundry’s available capacity. At any given time, these foundries could choose to prioritize capacity for their own use or other customers or reduce or eliminate deliveries to us on short notice. If growth in demand for our products occurs, these foundries may be unable or unwilling to allocate additional capacity to our needs, thereby limiting our revenue growth. Accordingly, we cannot be certain that these foundries will allocate sufficient capacity to satisfy our requirements. In addition, we cannot be certain that we will continue to do business with these or other foundries on terms as favorable as our current terms. If we are not able to obtain additional foundry capacity as required, our relationships with our customers could be harmed and our revenues could be reduced or their growth limited. Moreover, even if we are able to secure additional foundry capacity, we may be required, either contractually or as a practical business matter, to utilize all of that capacity or incur penalties or an adverse effect on the business relationship. The costs related to maintaining foundry capacity could be expensive and could harm our operating results. Other risks associated with our reliance on external foundries include:


	•	the lack of control over delivery schedules;

	•	the unavailability of, or delays in obtaining access to, key process technologies;

	•	limited control over quality assurance, manufacturing yields and production costs; and

	•	potential misappropriation of our intellectual property.

Our requirements typically represent a small portion of the total production of the external foundries that manufacture our wafers and products. We cannot be certain these external foundries will continue to devote

resources to the production of our wafers and products or continue to advance the process design technologies on which the manufacturing of our products is based. These circumstances could harm our ability to deliver our products or increase our costs.

Our success depends on our ability to manufacture our products efficiently.

We manufacture our products in facilities that are owned and operated by us, as well as in external wafer foundries and subcontract assembly facilities. The fabrication of semiconductors is a highly complex and precise process, and a substantial percentage of wafers could be rejected or numerous die on each wafer could be nonfunctional as a result of, among other factors:


	•	contaminants in the manufacturing environment;

	•	defects in the masks used to print circuits on a wafer;

	•	manufacturing equipment failure; or

	•	wafer breakage.

For these and other reasons, we could experience a decrease in manufacturing yields. Additionally, if we increase our manufacturing output, we may also experience a decrease in manufacturing yields. As a result, we may not be able to cost-effectively expand our production capacity in a timely manner.

Our markets are subject to technological change and our success depends on our ability to develop and introduce new products.

The markets for our products are characterized by:


	•	changing technologies;

	•	changing customer needs;

	•	frequent new product introductions and enhancements;

	•	increased integration with other functions; and

	•	product obsolescence.

To develop new products for our target markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to expand our technical and design expertise. Failure to do so could cause us to lose our competitive position and seriously impact our future revenues.

Products or technologies developed by others may render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets would have a material adverse effect on our competitive position within the industry.

We may not be able to protect our intellectual property rights adequately.

Our ability to compete is affected by our ability to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect our intellectual property rights. Despite these efforts, we cannot be certain that the steps we take to protect our proprietary information will be adequate to prevent misappropriation of our technology, or that our competitors will not independently develop technology that is substantially similar or superior to our technology. More specifically, we cannot assure that our pending patent applications or any future applications will be approved, or that any issued patents will provide us with competitive advantages or will not be challenged by third parties. Nor can we assure that, if challenged, our patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on our ability to do business. We may also become subject to or initiate interference proceedings in the U.S. Patent and Trademark Office, which can demand significant financial and management resources and could harm our financial results. Also, others may independently develop similar

products or processes, duplicate our products or processes or design their products around any patents that may be issued to us.

Our revenues are dependent upon our products being designed into our customers’ products.

Many of our products are incorporated into customers’ products or systems at the design stage. The value of any design win largely depends upon the customer’s decision to manufacture the designed product in production quantities, the commercial success of the customer’s product and the extent to which the design of the customer’s electronic system also accommodates incorporation of components manufactured by our competitors. In addition, our customers could subsequently redesign their products or systems so that they no longer require our products. The development of the next generation of products by our customers generally results in new design competitions for semiconductors, which may not result in design wins for us, potentially leading to reduced revenues and profitability. We may not achieve design wins or our design wins may not result in future revenues.

Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.

The time from initiation of design to volume production of new semiconductors often takes 18 months or longer. We first work with customers to achieve a design win, which may take nine months or longer. Our customers then complete the design, testing and evaluation process and begin to ramp up production, a period that may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.

Our backlog may not result in future revenues.

Customer orders typically can be cancelled or rescheduled without penalty to the customer. As a result, our backlog at any particular date is not necessarily indicative of actual revenues for any succeeding period. A reduction of backlog during any particular period, or the failure of our backlog to result in future revenues, could harm our results of operations.

The markets in which we participate are intensely competitive.

Certain of our target markets are intensely competitive. Our ability to compete successfully in our target markets depends on the following factors:


	•	proper new product definition;

	•	product quality, reliability and performance;

	•	product features;

	•	price;

	•	timely delivery of products;

	•	breadth of product line;

	•	design and introduction of new products;

	•	market acceptance of our products and those of our customers; and

	•	technical support and service.

In addition, our competitors or customers may offer new products based on new technologies, industry standards or end-user or customer requirements, including products that have the potential to replace our products or provide lower cost or higher performance alternatives to our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.

Our primary power semiconductor competitors include Fairchild Semiconductor, Fuji, Hitachi, Infineon, International Rectifier, Microsemi, Mitsubishi, On Semiconductor, Powerex, Renesas Technology, Semikron International, STMicroelectronics, and Toshiba. Our IC products compete principally with those of Agere Systems, Legerity, NEC and Silicon Labs. Our RF power semiconductor competitors include RF Micro Devices. Many of our competitors have greater financial, technical, marketing and management resources than we have. Some of these competitors may be able to sell their products at prices below which it would be profitable for us to sell our products or benefit from established customer relationships that provide them with a competitive advantage. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased price competition.

We rely on our distributors and sales representatives to sell many of our products.

A substantial majority of our products are sold to distributors or through sales representatives. Our distributors and sales representatives could reduce or discontinue sales of our products. They may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. In addition, we depend upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives. If any significant distributor or sales representative experiences financial difficulties, or otherwise becomes unable or unwilling to promote and sell our products, our business could be harmed. For example, All American Semiconductor, Inc., one of our distributors, filed for bankruptcy in April 2007.

Fluctuations in the mix of products sold may adversely affect our financial results.

Because of the wide price differences among our products, geographies and markets, the mix and types of products sold may have a substantial impact on our revenues and gross profit margins. In addition, more recently introduced products tend to have higher associated costs because of initial overall development costs and higher start-up costs. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product, and as a result can negatively impact our financial results.

Our future success depends on the continued service of management and key engineering personnel and our ability to identify, hire and retain additional personnel.

Our success depends upon our ability to attract and retain highly-skilled technical, managerial, marketing and finance personnel, and, to a significant extent, upon the efforts and abilities of Nathan Zommer, Ph.D., our President and Chief Executive Officer, and other members of senior management. The loss of the services of one or more of our senior management or other key employees could adversely affect our business. We do not maintain key person life insurance on any of our officers, employees or consultants. There is intense competition for qualified employees in the semiconductor industry, particularly for highly skilled design, applications and test engineers. We may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our business or to replace engineers or other qualified individuals who could leave us at any time in the future. If we grow, we expect increased demands on our resources, and growth would likely require the addition of new management and engineering staff as well as the development of additional expertise by existing management employees. If we lose the services of or fail to recruit key engineers or other technical and management personnel, our business could be harmed.

Growth and expansion place a significant strain on our resources, including our information systems and our employee base.

Presently, because of past acquisitions, we are operating a number of different information systems that are not integrated. In part because of this, we use spreadsheets, which are prepared by individuals rather than automated systems, in our accounting. Consequently, in our accounting, we perform many manual reconciliations and other

manual steps, which result in a high risk of errors. Manual steps also increase the probability of control deficiencies and material weaknesses.

If we do not adequately manage and evolve our financial reporting and managerial systems and processes, our ability to manage and grow our business may be harmed. Our ability to successfully implement our goals and comply with regulations, including those adopted under the Sarbanes-Oxley Act of 2002, requires an effective planning and management system and process. We will need to continue to improve existing, and implement new, operational and financial systems, procedures and controls to manage our business effectively in the future.

In improving our operational and financial systems, procedures and controls, we would expect to periodically implement new software and other systems that will affect our internal operations regionally or globally. The conversion process from one system to another is complex and could require, among other things, that data from the existing system be made compatible with the upgraded system. During any transition, we could experience errors, delays and other inefficiencies, which could adversely affect our business. Any delay in the implementation of, or disruption in the transition to, any new or enhanced systems, procedures or controls, could harm our ability to forecast sales demand, manage our supply chain, achieve accuracy in the conversion of electronic data and record and report financial and management information on a timely and accurate basis. In addition, as we add additional functionality, new problems could arise that we have not foreseen. Such problems could adversely impact our ability to do the following in a timely manner: provide quotes; take customer orders; ship products; provide services and support to our customers; bill and track our customers; fulfill contractual obligations; and otherwise run our business. Failure to properly or adequately address these issues could result in the diversion of management’s attention and resources, impact our ability to manage our business and our results of operations, cash flows, and stock price could be negatively impacted.

Any future growth would also require us to successfully hire, train, motivate and manage new employees. In addition, continued growth and the evolution of our business plan may require significant additional management, technical and administrative resources. We may not be able to effectively manage the growth and evolution of our current business.

Our dependence on subcontractors to assemble and test our products subjects us to a number of risks, including an inadequate supply of products and higher materials costs.

We depend on subcontractors for the assembly and testing of our products. The substantial majority of our products are assembled by subcontractors located outside of the United States. Our reliance on these subcontractors involves the following significant risks:


	•	reduced control over delivery schedules and quality;

	•	the potential lack of adequate capacity during periods of excess demand;

	•	difficulties selecting and integrating new subcontractors;

	•	limited or no warranties by subcontractors or other vendors on products supplied to us;

	•	potential increases in prices due to capacity shortages and other factors;

	•	potential misappropriation of our intellectual property; and

	•	economic or political instability in foreign countries.

These risks may lead to delayed product delivery or increased costs, which would harm our profitability and customer relationships.

In addition, we use a limited number of subcontractors to assemble a significant portion of our products. If one or more of these subcontractors experiences financial, operational, production or quality assurance difficulties, we could experience a reduction or interruption in supply. Although we believe alternative subcontractors are available, our operating results could temporarily suffer until we engage one or more of those alternative subcontractors. Moreover, in engaging alternative subcontractors in exigent circumstances, our production costs could increase markedly.

We depend on a limited number of suppliers for our substrates, most of whom we do not have long-term agreements with.

We purchase the bulk of our silicon substrates from a limited number of vendors, most of whom we do not have long-term supply agreements with. Any of these suppliers could reduce or terminate our supply of silicon substrates at any time. Our reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon substrates and reduced control over the price, timely delivery, reliability and quality of the silicon substrates. We cannot assure that problems will not occur in the future with suppliers.

We face the risk of financial exposure to product liability claims alleging that the use of products that incorporate our semiconductors resulted in adverse effects.

Approximately 12% of our net revenues in fiscal 2007 were derived from sales of products used in medical devices such as defibrillators. Product liability risks may exist even for those medical devices that have received regulatory approval for commercial sale. We cannot be sure that the insurance that we maintain against product liability will be adequate to cover our losses. Any defects in our semiconductors used in these devices, or in any other product, could result in significant replacement, recall or product liability costs to us.

Regulations may adversely affect our ability to sell our products.

Power semiconductors with operating voltages above 40 volts are subject to regulations intended to address the safety, reliability and quality of the products. These regulations relate to processes, design, materials and assembly. For example, in the United States, some high voltage products are required to pass Underwriters Laboratory recognition for voltage isolation and fire hazard tests. Sales of power semiconductors outside of the United States are subject to international regulatory requirements that vary from country to country. The process of obtaining and maintaining required regulatory clearances can be lengthy, expensive and uncertain. The time required to obtain approval for sale internationally may be longer than that required for U.S. approval, and the requirements may differ.

In addition, approximately 12% of our revenues in fiscal 2007 were derived from the sale of products included in medical devices that are subject to extensive regulation by numerous governmental authorities in the United States and internationally, including the U.S. Food and Drug Administration, or FDA. The FDA and certain foreign regulatory authorities impose numerous requirements for medical device manufacturers to meet, including adherence to Good Manufacturing Practices, or GMP, regulations and similar regulations in other countries, which include testing, control and documentation requirements. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by federal and state agencies, including the FDA, and by comparable agencies in other countries. Our failure to comply with applicable regulatory requirements could prevent our products from being included in approved medical devices.

Our business could also be harmed by delays in receiving or the failure to receive required approvals or clearances, the loss of previously obtained approvals or clearances or the failure to comply with existing or future regulatory requirements.

If our goodwill or long-lived assets become impaired, we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our long-lived assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or long-lived assets may not be recoverable include a decline in stock price and market capitalization, future cash flows, and slower growth rates in our industry. We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or long-lived assets is determined resulting in an impact on our results of operations.

We estimate tax liabilities, the final determination of which is subject to review by domestic and international taxation authorities.

We are subject to income taxes and other taxes in both the United States and the foreign jurisdictions in which we currently operate or have historically operated. We are also subject to review and audit by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our consolidated financial statements and may materially affect our income tax provision, net income or cash flows in the period or periods for which such determination is made.

We are exposed to various risks related to the regulatory environment.

We are subject to various risks related to: (1) new, different, inconsistent or even conflicting laws, rules and regulations that may be enacted by legislative bodies and/or regulatory agencies in the countries in which we operate; (2) disagreements or disputes between national or regional regulatory agencies; and (3) the interpretation and application of laws, rules and regulations. If we are found by a court or regulatory agency not to be in compliance with applicable laws, rules or regulations, our business, financial condition and results of operations could be materially and adversely affected.

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report of management on the effectiveness of our internal controls over financial reporting and an attestation by our independent registered public accounting firm to the adequacy of management’s assessment of our internal control. Ongoing compliance with these requirements is complex, costly and time-consuming. If (1) we fail to maintain effective internal control over financial reporting; (2) our management does not timely assess the adequacy of such internal control; or (3) our independent registered public accounting firm does not timely attest to the evaluation, we could be subject to regulatory sanctions and the public’s perception of our company may decline.

We invest in companies for strategic reasons and may not realize a return on our investments.

We make investments in companies to further our strategic objectives and support our key business initiatives. Such investments include investments in equity securities of public companies and investments in non-marketable equity securities of private companies, which range from early-stage companies that are often still defining their strategic direction to more mature companies whose products or technologies may directly support a product or initiative. The success of these companies is dependent on product development, market acceptance, operational efficiency, and other key business success factors. The private companies in which we invest may fail because they may not be able to secure additional funding, obtain favorable investment terms for future financings, or take advantage of liquidity events such as initial public offerings, mergers, and private sales. If any of these private companies fail, we could lose all or part of our investment in that company. If we determine that an other-than-temporary decline in the fair value exists for the equity securities of the public and private companies in which we invest, we write down the investment to its fair value and recognize the related write-down as an investment loss. Furthermore, when the strategic objectives of an investment have been achieved, or if the investment or business diverges from our strategic objectives, we may decide to dispose of the investment even at a loss. Our investments in non-marketable equity securities of private companies are not liquid, and we may not be able to dispose of these investments on favorable terms or at all. The occurrence of any of these events could negatively affect our results of operations.

Our ability to access capital markets could be limited.

From time to time, we may need to access the capital markets to obtain long-term financing. Although we believe that we can continue to access the capital markets on acceptable terms and conditions, our flexibility with

regard to long-term financing activity could be limited by our existing capital structure, our credit ratings, and the health of the semiconductor industry. In addition, many of the factors that affect our ability to access the capital markets, such as the liquidity of the overall capital markets and the current state of the economy, are outside of our control. There can be no assurance that we will continue to have access to the capital markets on favorable terms.

Geopolitical instability, war, terrorist attacks, terrorist threats, and government responses thereto, may negatively affect all aspects of our operations, revenues, costs and stock prices.

Any such event may disrupt our operations or those of our customers or suppliers. Our markets currently include South Korea, Taiwan and Israel, which are currently experiencing political instability. Additionally, our principal external foundry is located in South Korea.

Business interruptions may damage our facilities or those of our suppliers.

Our operations and those of our suppliers are vulnerable to interruption by fire, earthquake and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and do not have backup generators. Our facilities in California are located near major earthquake faults and have experienced earthquakes in the past. If any of these events occur, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.

We may be affected by environmental laws and regulations.

We are subject to a variety of laws, rules and regulations in the United States, England and Germany related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process. Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs could significantly increase. Our failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.

Nathan Zommer, Ph.D. owns a significant interest in our common stock.

Nathan Zommer, Ph.D., our President and Chief Executive Officer, beneficially owned, as of May 24, 2007, approximately 21% of the outstanding shares of our common stock. As a result, Dr. Zommer can exercise significant control over all matters requiring stockholder approval, including the election of the board of directors. His holdings could result in a delay of, or serve as a deterrent to, any change in control of IXYS, which may reduce the market price of our common stock.

Our stock price is volatile.

The market price of our common stock has fluctuated significantly to date. The future market price of our common stock may also fluctuate significantly in the event of:


	•	variations in our actual or expected quarterly operating results;

	•	announcements or introductions of new products;

	•	technological innovations by our competitors or development setbacks by us;

	•	conditions in the communications and semiconductor markets;

	•	the commencement or adverse outcome of litigation;

	•	changes in analysts’ estimates of our performance or changes in analysts’ forecasts regarding our industry, competitors or customers;

	•	announcements of merger or acquisition transactions or a failure to achieve the expected benefits of an acquisition as rapidly or to the extent anticipated by financial analysts;


	•	terrorist attack or war;

	•	sales of our common stock by one or more members of management, including Nathan Zommer, Ph.D., our President and Chief Executive Officer; or

	•	general economic and market conditions.

In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, including semiconductor companies. These fluctuations have often been unrelated or disproportionate to the operating performance of companies in our industry, and could harm the market price of our common stock.

The anti-takeover provisions of our certificate of incorporation and of the Delaware General Corporation Law may delay, defer or prevent a change of control.

Our board of directors has the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control because the terms of any issued preferred stock could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction, without the approval of the holders of the outstanding shares of preferred stock. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders.

Our stockholders must give substantial advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to our stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of our common stock. The Delaware statute makes it more difficult for us to be acquired without the consent of our board of directors and management.


Item 1B.	*Unresolved Staff Comments*

Not Applicable.


Item 2.	*Properties*

Our principal facilities are described below:


	Approximate
	Square
Principal Facilities	Footage		Lease Expiration	Use

Aliso Viejo, California		27,000	(1)	Research and development, sales and distribution
Beverly, Massachusetts		83,000	(1)	Research and development, manufacturing, sales and distribution
Chippenham, England		100,000	December 2022	Research and development, manufacturing, sales and distribution
Fremont, California		30,000	November 2008	Research and development, manufacturing, sales and distribution
Lampertheim, Germany		170,000	(1)	European headquarters, research and development, manufacturing, sales and distribution
Santa Clara, California		20,000	January 2009	Corporate headquarters, research and development, sales and distribution


(1)		Owned, not leased.

In January 2007, we entered into an agreement to purchase a building, to be used as our corporate offices and facility for Silicon Valley operations, for approximately $7.5 million. The transaction is expected to be completed in July 2007. We believe that our current facilities, with our expected new Silicon Valley facility, are suitable to our needs and will be adequate through at least fiscal year 2008 and that suitable additional or replacement space will be available in the future as needed on commercially reasonably terms. The Lampertheim property serves as collateral for a bank loan, and is subject to the bank’s security interest.


Item 3.	*Legal Proceedings*

We are currently involved in a variety of legal matters that arise in the normal course of business. Were an unfavorable ruling to occur, there could be a material adverse impact on our financial condition, results of operations or cash flows.

International Rectifier

On June 22, 2000, International Rectifier Corporation filed an action for patent infringement against IXYS in the United States District Court for the Central District of California, alleging that certain of IXYS’s products sold in the United States infringe U.S. patents owned by International Rectifier. International Rectifier’s complaint against IXYS contended that IXYS’s alleged infringement of International Rectifier’s patents had been and continued to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’s power MOSFETs and IGBTs infringed certain claims of each of three International Rectifier U.S. patents.

In 2002, the U.S. District Court entered a permanent injunction barring IXYS from making, using, offering to sell or selling in, or importing into the United States MOSFETs (including IGBTs) covered by the subject patents and ruled that International Rectifier should be awarded damages of $9.1 million for IXYS’s alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that IXYS had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees.

IXYS appealed and on March 19, 2004 the United States Court of Appeals for the Federal Circuit reversed or vacated all findings of patent infringement previously issued against IXYS by the U.S. District Court, and vacated the permanent injunction. On August 9, 2004, the Federal Circuit Court vacated the damages award. The case was remanded to the U.S. District Court for further proceedings. Trial commenced in the U.S. District Court on September 6, 2005. On September 15, 2005, the jury specifically found that IXYS was not guilty of willful infringement.

International Rectifier had accused IXYS of infringing its 4,959,699 (“699”), 5,008,725 (“725”) and 5,130,767 (“767”) patents. The claims of these patents fall into two groups. The jury ruled that one of the groups of claims was infringed by the doctrine of equivalents; however, the claims in this group are minor claims and are not expected to have a material financial impact on IXYS.

As to the other group of claims, the jury found that IXYS did not infringe the 725 and 767 patents, but did infringe the 699 patent by the doctrine of equivalents. If upheld on appeal, this finding would have a material financial impact on IXYS. However, the jury also made a specific finding that IXYS’s devices do not infringe the 725 and 767 patents because they include an “annular source region,” which IXYS believes is inconsistent with the conclusion that the 699 patent is infringed. The jury’s verdict awarded International Rectifier $6.2 million as damages for the infringement plus 6.5% of revenues from infringing products, by implication, after September 30, 2005. The U.S. District Court entered a judgment reflecting the jury’s verdict and also issued a permanent injunction barring IXYS from selling or distributing the infringing products. Thereafter, IXYS appealed the judgment and the injunction to the Federal Circuit Court. Without addressing the substance of IXYS’s appeal, on July 14, 2006, the Federal Circuit Court vacated the judgment and the injunction and remanded the matter to U.S. District Court for “further proceedings as appropriate” in view of the United States Supreme Court’s recent decision in eBay, Inc. v. MercExchange, LLC. In September 2006, the U.S. District Court again entered another judgment reflecting the jury’s determination of damages and issued a permanent injunction barring IXYS from selling or distributing the infringing products. IXYS is appealing the judgment against it and the injunction barring IXYS from selling or distributing products. Counsel to IXYS inadvertently did not file the requisite notice of appeal following the entry of judgment within the required time period. However, because IXYS’s counsel has taken timely corrective measures, IXYS believes that it is unlikely that IXYS will be precluded from pursuing its appeal. In January 2007, the Federal Circuit Court declined to issue a stay of the judgment and injunction. The judgment therefore became payable and the injunction enforceable. In connection with this matter, IXYS recognized a litigation provision of $6.8 million during the year ended March 31, 2007. There is no assurance that this amount is sufficient for any actual losses that may be incurred as a result of this litigation.

There can be no assurance of a favorable final outcome in the International Rectifier suit. In the event of an adverse outcome, damages or the injunction awarded by the U.S. District Court would be materially adverse to IXYS’s financial condition, results of operations and cash flows.

LoJack

On April 10, 2003, LoJack Corporation, or LoJack, filed a suit against Clare, Inc., a subsidiary of IXYS, in the Superior Court of Norfolk County, Massachusetts claiming breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, failure to perform services and violation of a Massachusetts statute prohibiting unfair and deceptive acts and practices, all purportedly resulting from Clare’s alleged breach of a contract to develop custom integrated circuits and a module assembly. The trial commenced on January 30, 2006. On February 8, 2006, the jury awarded LoJack $36.7 million in damages. On July 20, 2006, the Superior Court reduced LoJack’s damages to $4 million.

Under Massachusetts law, a damage award is increased for pre-judgment interest. Pre-judgment interest was determined to be $2.1 million at the time of the entry of the judgment on July 25, 2006. In addition, the Superior Court determined the attorneys’ fees and costs payable by Clare to be $708,000. Post-judgment interest accrues on the total judgment, inclusive of the pre-judgment interest, attorneys’ fees and costs, at the rate of 12% per annum simple interest. At March 31, 2007, IXYS’s reserve for this matter was $7.4 million. There is no assurance that this amount is sufficient for any actual losses that may be incurred as a result of this litigation.

In August 2006, LoJack filed a notice with the Superior Court of a motion to reconsider the judgment for the purpose of reinstating the full amount of the jury’s damage award. In September 2006, the Superior Court ruled against LoJack’s motion. LoJack and IXYS each appealed the judgment of the Superior Court. On April 13, 2007, the parties’ appeals were argued before the Appeals Court of Massachusetts. The enforcement of the judgment will be stayed pending appeal without the necessity of filing any bond. The appeals may take a year or more to conclude. Payment of an award, if ever, will only occur at the conclusion of this process.

There can be no assurance of a favorable final outcome in the LoJack Corporation suit. In the event of an adverse outcome, damages would be materially adverse to IXYS’s financial condition, results of operations and cash flows.


Item 4.	*Submission of Matters to a Vote of Security Holders*

Not Applicable.

Executive Officers of the Registrant

The executive officers, their ages and positions at IXYS, as well as certain biographical information of these individuals, are set forth below. The ages of the individuals are provided as of March 31, 2007.

There are no family relationships among our directors and executive officers.

Nathan Zommer. Dr. Zommer, our founder, has served as a Director since our inception in 1983, and has served as Chairman of the Board, President and Chief Executive Officer since 1993. From 1984 to 1993, Dr. Zommer served as our Executive Vice President. Prior to founding IXYS, Dr. Zommer served in a variety of positions with Intersil, Hewlett-Packard and General Electric, including as a scientist in the Hewlett-Packard Laboratories and Director of the Power MOS Division for Intersil/General Electric. Dr. Zommer received his B.S. and M.S. degrees in Physical Chemistry from Tel Aviv University and a Ph.D. in Electrical Engineering from Carnegie Mellon University.

Uzi Sasson. Mr. Sasson has served as our Chief Operating Officer since June 2007 and our Vice President of Finance, Chief Financial Officer and Secretary since November 2004. From February to November 2004, Mr. Sasson was the Chief Executive Officer of Sagent Management, a tax and accounting consulting firm. Mr. Sasson also served as the interim Chief Financial Officer for Digital Power Corp., a manufacturer of switching power supplies, from June 2004 to November 2004. Mr. Sasson served as Vice President of Tax for Mercury Interactive Corporation, a provider of software and services for the business technology optimization marketplace, from 2001 to 2003. Prior to that, Mr. Sasson was a Senior Manager at PricewaterhouseCoopers LLP, an accounting firm, from 1992 to 2001. From August to November 2004, Mr. Sasson served as a director of IXYS. Mr. Sasson has a Masters of Science in Taxation and Bachelor of Science in Accounting from Golden Gate University and is a Certified Public Accountant in California.

Peter H. Ingram. Mr. Ingram has served General Manager of IXYS Semiconductor GmbH since February 2007. From 2000 to 2007, he served as our President of European Operations and, from 1994 to 2000, he served as our Vice President of European Operations. From 1989 to 1994, he served as our Director of Wafer Fab Operations. Mr. Ingram worked with the semiconductor operations of ABB from 1982 until we acquired those operations in 1989. Mr. Ingram received an Honors degree in Chemistry from the University of Nottingham.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our common stock is traded on the Nasdaq Global Market under the symbol “IXYS.” The following table presents, for the periods indicated, the high and low sale prices per share of our common stock as reported by the Nasdaq Global Market:


	High		Low

Fiscal year ending March 31, 2007
First Quarter	$	10.60	$	8.87
Second Quarter	$	9.89	$	8.10
Third Quarter	$	10.45	$	8.26
Fourth Quarter	$	10.74	$	7.92
Fiscal year ending March 31, 2006
First Quarter	$	14.96	$	9.24
Second Quarter	$	15.01	$	9.46
Third Quarter	$	12.74	$	9.65
Fourth Quarter	$	13.48	$	8.75

The number of record holders of our common stock as of May 24, 2007 was 422. To date, we have not declared or paid cash dividends. We have no plans to do so.

Issuer Purchases of Equity Securities


	Total				Total Number of Shares		Maximum Number of
	Number of		Average Price		Purchased as Part of		Shares that May Yet Be
	Shares		Paid per		Publicly Announced		Purchased Under the
Period	Purchased		Share		Plans or Programs		Plans or Programs(1)

January 1, 2007 — January 31, 2007		—		—		—		568,460
February 1, 2007 — February 28, 2007		499,253	$	9.14		499,253		2,000,000
March 1, 2007 — March 31, 2007		63,624	$	10.06		63,624		1,936,376

Total		562,877	$	9.25		562,877


(1)		A program was approved on May 12, 2006 and was terminated on February 27, 2007. It had been scheduled to expire on June 15, 2007. It authorized the purchase of up to 2,000,000 shares of common stock. A new program was approved on February 27, 2007 and will end on June 15, 2008. The purchase of up to 2,000,000 shares of common stock has been approved under this program.


Item 6.	*Selected Financial Data*

The following selected consolidated financial information should be read in conjunction with our consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the years ended March 31, 2007, 2006, and 2005 and the balance sheet data as of March 31, 2007 and 2006 are derived from our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The statements of operations data for the years ended March 31, 2004 and 2003 and the balance sheet data as of March 31, 2005, 2004, and 2003 are derived from our consolidated financial statements that are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of results to be expected in any future period.


	Years Ended March 31,
	2007(1)			2006			2005			2004(2)			2003(3)
	(In thousands, except per share amounts)

Statement of operations data:
Net revenues	$	285,908		$	251,487		$	256,620		$	187,442		$	136,111
Cost of goods sold		201,577			169,792			176,710			143,948			107,371

Gross profit		84,331			81,695			79,910			43,494			28,740
Operating expenses:
Research, development and engineering		20,105			17,523			18,574			15,811			12,846
Selling, general and administrative		44,134			38,371			35,707			32,742			32,437
Restructuring charge		—			—			—			—			750
Litigation provision		(29,435	)		42,810			—			—			—

Total operating expenses		34,804			98,704			54,281			48,553			46,033

Operating income (loss)		49,527			(17,009	)		25,629			(5,059	)		(17,293	)
Other income (expense):
Interest income, net		1,793			2,182			633			310			720
Other (expense) income		(3,081	)		1,810			(481	)		(1,324	)		(1,288	)

Income (loss) before income taxes		48,239			(13,017	)		25,781			(6,073	)		(17,861	)
(Provision for) benefit from income tax		(18,020	)		6,911			(9,539	)		1,641			5,716

Net income (loss)	$	30,219		$	(6,106	)	$	16,242		$	(4,432	)	$	(12,145	)

Net income (loss) per share — basic	$	0.90		$	(0.18	)	$	0.49		$	(0.14	)	$	(0.39	)

Weighted average shares used in per share calculation — basic		33,505			33,636			33,093			32,434			30,889

Net income (loss) per share — diluted	$	0.87		$	(0.18	)	$	0.46		$	(0.14	)	$	(0.39	)

Weighted average shares used in per share calculation — diluted		34,784			33,636			35,085			32,434			30,889


	As of March 31,
	2007(1)			2006			2005			2004(2)			2003(3)
	(In thousands)

Selected operating data:
Gross profit margin		29.5	%		32.5	%		31.1	%		23.2	%		21.1	%
Depreciation and amortization	$	10,499		$	8,543		$	10,639		$	11,186		$	9,297
Balance sheet data:
Cash and cash equivalents	$	54,027		$	78,192		$	58,144		$	42,058		$	40,094
Working capital		142,408			118,815			124,063			96,246			95,425
Total assets		273,641			279,987			219,891			198,269			183,057
Total long-term obligations		34,647			28,023			16,796			15,120			14,966
Total stockholders’ equity		181,109			159,973			165,277			145,531			138,809
Cash flow data:
Cash provided by operating activities	$	1,883		$	31,143		$	23,730		$	5,679		$	2,404
Cash (used in) provided by investing activities		(8,865	)		(20,756	)		(4,966	)		(1,929	)		5,012
Cash (used in) provided by financing activities		(20,093	)		11,214			(2,734	)		(2,311	)		(284	)


(1)		We began recognizing the provisions of SFAS 123(R) beginning in fiscal 2007. See Note 3, “Employee Equity Incentive Plans” in Part II, Item 8 of this Annual Report on Form 10-K.

(2)		During fiscal 2004, we completed our acquisition of Microwave Technology, Inc.

(3)		During fiscal 2003, we completed our acquisition of Clare, Inc.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

This discussion contains forward-looking statements, which are subject to certain risks and uncertainties, including, without limitation, those described elsewhere in this Form 10-K and, in particular, in Item 1A hereof. Actual results may differ materially from the results discussed in the forward-looking statements. For a discussion of risks that could affect future results, see “Item 1A. Risk Factors.” All forward-looking statements included in this document are made as of the date hereof, based on the information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

Overview

We are a multi-market integrated semiconductor company. Our three principal product groups are: power semiconductors; integrated circuits; and systems and RF power semiconductors.

Our power semiconductors improve system efficiency and reliability by converting electricity at relatively high voltage and current levels into the finely regulated power required by electronic products. We focus on the market for power semiconductors that are capable of processing greater than 200 watts of power.

We also design, manufacture and sell integrated circuits for a variety of applications. Our analog and mixed signal ICs are principally used in telecommunications applications. Our mixed signal application specific ICs, or ASICs, address the requirements of the medical imaging equipment and display markets. Our power management and control ICs are used in conjunction with our power semiconductors.

Our RF power semiconductors enable circuitry that amplifies or receives radio frequencies in wireless and other microwave communication applications, medical imaging applications and defense and space applications.

Over the past fiscal year, our revenues from the sales of semiconductors for the consumer products and medical markets have declined while our revenues from the sale of semiconductors for the industrial and commercial market have increased. Geographically, over the same period, our revenues in the United States decreased slightly, our revenues in Europe and the Middle East increased substantially, in large part because of the strengthening European

economy, growth in the industrial and commercial market and the depreciation of the dollar against the pound and the euro, and our revenues in Asia increased as our customers shifted their manufacturing to Asia and the industrial and commercial market grew. Gross profit margins declined during the fiscal year due to write-offs of excess inventory, production inefficiencies and the decline in revenues from the higher margin medical market as a percentage of total revenues. Selling, general and administrative expenses increased in the fiscal year, in large part due to increasing costs of compliance with laws and regulations and the commencement of the expensing of stock options. Distribution revenue increased during the fiscal year, as revenues shifted to applications that are traditionally bought through distributors, such as industrial and commercial applications, while our revenues from semiconductors for the consumer products market, which are typically purchased directly from us, declined. During the fiscal year, we increased inventory to become more responsive to customer demand for shorter lead times for the delivery of orders, in light of our customers’ desire to manage their inventories on a “just-in-time” basis. With the shortening of order lead times, our visibility as to the timing of revenues and product mix has declined.

We have adjusted the preliminary consolidated financial information for the quarter and year ended March 31, 2007, announced on May 24, 2007, to reflect an increase of $1.5 million in net income. The adjustments were made to reflect changes in estimates relating to the provision for income taxes made in the first quarter and to reverse the accrual of bonuses for the executive officers. As a consequence of these adjustments, our net income for the quarter ended March 31, 2007 increased to $2.2 million, or $0.07 per share on a diluted basis, and our net income for fiscal 2007 increased to $30.2 million, or $0.87 per share on a diluted basis.

Critical Accounting Policies and Significant Management Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the reasonableness of its estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require that we make significant judgments and estimates in preparing our consolidated financial statements.

Revenue recognition. We sell to distributors and original equipment manufacturers. Approximately 47% of our revenues in fiscal 2007, 44% of our revenues in fiscal 2006, and 36% of our revenues in fiscal 2005 were from distributors. We provide some of our distributors with the following programs: stock rotation and ship and debit. Ship and debit is a sales incentive program for products previously shipped to distributors. We recognize revenue from product sales upon shipment provided that we have received an executed purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Our shipping terms are generally FOB shipping point. Reserves for allowances are also recorded at the time of shipment. Our management must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Our management analyzes historical allowance activity, current economic trends and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing the allowances in any accounting period. Different judgments or estimates would result in material differences in the amount and timing of our revenue for any period.

For our nonrecurring engineering, or NRE, related to engineering work performed by our Clare Micronix division to design chip prototypes that will later be used to produce required units, customers enter into arrangements with Clare Micronix to perform engineering work for a fixed fee. Clare Micronix records fixed-fee payments during the development phase from customers in accordance with Statement of Financial Accounting

Standards, of SFAS, No. 68, “Research and Development Arrangements.” Amounts offset against research and development costs totaled approximately $355,000 in fiscal 2007, $363,000 in fiscal 2006, and $161,000 in fiscal 2005.

We state our revenues, net of any taxes collected from customers that are required to be remitted to the various government agencies. The amount of taxes collected from customers and payable to government is included under accrued expenses and other current liabilities. Shipping and handling costs are included in cost of sales.

Allowance for sales returns. We maintain an allowance for sales returns for estimated product returns by our customers. We estimate our allowance for sales returns based on our historical return experience, current economic trends, changes in customer demand, known returns we have not received and other assumptions. If we were to make different judgments or utilize different estimates, the amount and timing of our revenue could be materially different. Given that our revenues consist of a high volume of relatively similar products, to date our actual returns and allowances have not fluctuated significantly from period to period, and our returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations.

Allowance for stock rotation. We also provide “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous six months’ sales in exchange for orders of an equal or greater amount. In the fiscal years ended March 31, 2007, 2006, and 2005, approximately $1.8 million, $962,000, and $1.1 million, respectively, of products were returned to us under the program. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. We establish the allowance based upon maximum allowable rotations, which is management’s best estimate of future returns.

Allowance for ship and debit. Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. We have no obligation to accept this request. However, it is our historical practice to allow some companies to obtain pricing adjustments for inventory held. We receive periodic statements regarding our products held by our distributors. Our distributors had approximately $2.9 million in inventory of our products on hand at March 31, 2007. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. In accordance with Staff Accounting Bulletin No. 104 Topic 13, “Revenue Recognition,” at the time we record sales to the distributors, we provide an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends we see in our direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. We believe that the analysis of these inputs enable us to make reliable estimates of future credits under the ship and debit program. This analysis requires the exercise of significant judgments. Our actual results to date have approximated our estimates. At the time the distributor ships the part from stock, the distributor debits us for the authorized pricing adjustment. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, our estimates might be insufficient, which could significantly adversely affect results.

Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period and reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, our allowance for ship and debit during the three years ended March 31, 2007 (in thousands):


Balance March 31, 2004	$	424
Additions		2,742
Deductions		(2,613	)

Balance March 31, 2005		553
Additions		2,300
Deductions		(2,400	)

Balance March 31, 2006		453
Additions		3,903
Deductions		(4,119	)

Balance March 31, 2007	$	237

Allowance for doubtful accounts. We maintain an allowance for doubtful accounts for estimated losses from the inability of our customers to make required payments. We evaluate our allowance for doubtful accounts based on the aging of our accounts receivable, the financial condition of our customers and their payment history, our historical write-off experience and other assumptions. If we were to make different judgments of the financial condition of our customers or the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. This allowance is reported on the balance sheet as part of the accounts receivable allowance and is included on the statement of operations as part of selling, general and administrative expense. This allowance is based on historical losses and management’s estimates of future losses.

Inventories. Inventories are recorded at the lower of standard cost, which approximates actual cost on a first-in-first-out basis, or market value. Our accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. As it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, our inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. Effective April 1, 2006, we adopted SFAS 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS 151 requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. The application of SFAS 151 did not have a material impact on our consolidated financial statements. We review our standard costs on an as-needed basis but in any event at least once a year, and update them as appropriate to approximate actual costs.

We typically plan our production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of our inventories is dependent on our estimate of future demand as it relates to historical sales. If our projected demand is over-estimated, we may be required to reduce the valuation of our inventories below cost. We regularly review inventory quantities on hand and record an estimated provision for excess inventory based primarily on our historical sales and expectations for future use. For example, we perform an analysis of inventories and compare the sales for the preceding two years. To the extent we have inventory in excess of the greater of two years’ historical sales, twice the most recent year’s historical sales or backlog, we recognize a reserve for excess inventories. We also recognize a reserve based on known technological obsolescence, when appropriate. However, for new products, we do not consider whether there is excess inventory until we develop sufficient sales history or experience a significant change in expected product demand based on backlog. Actual demand and market conditions may be different from those projected by our management. This

could have a material effect on our operating results and financial position. If we were to make different judgments or utilize different estimates, the amount and timing of our write-down of inventories could be materially different.

Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once we have written down inventory below cost, we do not subsequently write it up. We do not physically segregate excess inventory and assign unique tracking numbers to it in our accounting systems. Consequently, we cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, we are unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on our gross profit margin.

The following table provides information on our excess inventory at cost (which has been fully reserved in our financial statements), including the sale of excess inventory valued at cost (in thousands):


Balance at March 31, 2004	$	24,632
Sale of excess inventory		(3,685	)
Scrap of excess inventory		(2,555	)

Balance of excess inventory		18,392
Additional accrual of excess inventory		2,849

Balance at March 31, 2005		21,241
Sale of excess inventory		(1,991	)
Scrap of excess inventory		(3,860	)

Balance of excess inventory		15,390
Additional accrual of excess inventory		3,987

Balance at March 31, 2006		19,377
Sale of excess inventory		(4,246	)
Scrap of excess inventory		(3,273	)

Balance of excess inventory		11,858
Additional accrual of excess inventory		6,971

Balance at March 31, 2007	$	18,829

The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, we do not know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than 9,000 different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to potential value and because our products do not quickly become obsolete, we expect to hold excess inventory for potential future sale for years. Consequently, we have no set time line for the sale or scrapping of excess inventory.

In addition, our inventory is also being written down to the lower of cost or market or net realizable value. We review our inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that our selling price is lower than current cost, the inventory is marked down accordingly. At March 31, 2007 and 2006, our lower of cost or market reserve was $615,000 and $260,000, respectively.

Furthermore, we perform an annual inventory count and periodic cycle counts for specific parts that have a high turnover. We also periodically identify any inventory that is no longer usable and write it off.

We entered into purchase agreements for purchase of fabricated wafers and substrates over two to six years. Under these agreements, the supplier agrees to supply and we are obliged to purchase products corresponding to an agreed yearly purchase amount. We have recognized the liability for all products delivered as at March 31, 2007. The total amounts committed under the agreement have been disclosed in “Disclosures about Contractual

Obligations and Commercial Commitments” elsewhere in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 6, “Commitments and Contingencies” of Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.

Valuation of Goodwill and Intangible Assets. We value goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

Goodwill. We regularly evaluate whether events and circumstances have occurred that indicate a possible impairment of goodwill and, in any event, we conduct such evaluation at least annually as of December 31. In determining whether there is an impairment of goodwill, we calculate the estimated implied fair value of our company by comparing the fair value of the reporting unit with its carrying amount, including goodwill. Then, if the carrying amount of the reporting unit exceeds its fair value, we perform the second step of the goodwill impairment test to measure the amount of impairment loss, if any. We have one reporting unit for which we have a balance in goodwill. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. We determine the implied fair value of goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, we report the excess as an impairment loss. We believe the methodology we use in testing impairment of goodwill provides us with a reasonable basis in determining whether an impairment charge should be taken. To date, our goodwill has not been considered to be impaired based on the results of our analysis.

In fiscal 2007, we reduced goodwill by $1 million. The reduction resulted from valuation allowance releases on deferred tax assets, accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” This is discussed in Note 11, “Income Taxes” in the Notes to Consolidated Financial Statements.

Valuation of property, plant and equipment. We regularly evaluate the recoverability of our property, plant, equipment and intangible assets in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Actual useful lives and cash flows could be different from those estimated by our management. This could have a material effect on our operating results and financial position. Reviews are regularly performed to determine whether facts and circumstances exist indicating that the carrying amount of assets may not be recoverable or that the useful life is shorter than originally estimated. We assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives.

Legal contingencies. We are subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact our financial position, results of operations or cash flows. We had reserves for litigation at March 31, 2007 of approximately $14.2 million, comprised of reserves for our litigation against International Rectifier Corporation of $6.8 million and against LoJack Corporation of $7.4 million.

Income tax. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a

valuation allowance. A valuation allowance reduces our deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, we consider estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which we operate. If we determine that we will not realize all or a portion of our remaining deferred tax assets, we will increase our valuation allowance with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will reduce goodwill, intangible assets, or income tax expense. Significant management judgment is required in determining our provision for income taxes and potential tax exposures, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish or increase a valuation allowance, which could materially impact our financial position and results of operations. Our ability to utilize our deferred tax assets and the need for a related valuation allowance are monitored on an ongoing basis.

In the fourth quarter, based on available positive and negative evidence, management evaluated the valuation allowance established for certain deferred tax assets and released $1.2 million in accordance with SFAS 109. This was reflected as a reduction in goodwill of $1 million and in income tax expense of $200,000. The reduction in valuation allowance primarily relates to our expected future taxable income in certain jurisdictions, together with available tax planning strategies, including the migration of intellectual property rights to lower tax jurisdictions. This may cause the effective tax rate in future years to fluctuate. In accordance with SFAS 5, “Accounting for Contingencies,” we reassessed our tax contingency reserves at the end of the year and recorded the appropriate adjustments.

Defined benefit plans. We maintain pension plans covering certain of our employees in foreign locations. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increase for plan employees. Our assumptions are derived from actuarial projections and actual market data. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of our pension plans. On March 31, 2007, we adopted the provisions of SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Retirement Plans.” SFAS 158 required us to recognize the funded status of our defined benefit pension and post-retirement benefit plans in our Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adoption of SFAS 158 did not have any impact on the consolidated financial statements. See Note 10, “Pension Plans” of the Notes to Consolidated Financial Statements elsewhere in this report for the effects of the adoption of SFAS 158.

Share-Based Compensation. In the first quarter of fiscal year 2007, we adopted SFAS No. 123(R), “Share-Based Payment,” which requires the measurement at fair value and recognition of compensation expense for all share-based payment awards. Total share-based compensation during fiscal 2007 was $2.0 million. Determining the appropriate fair value model and calculating the fair value of employee stock options and rights to purchase shares under stock purchase plans at the date of grant requires judgment. We use the Black-Scholes option pricing model to estimate the fair value of these share-based awards consistent with the provisions of SFAS 123(R). Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected volatility, expected life, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions that significantly affect the grant date fair value.

We use historical volatility based on our stock price. We use the simplified calculation of expected life described in the Staff Accounting Bulletin 107 of the SEC, due to changes in the vesting terms and contractual life of current option grants compared to our historical grants. If we determined that another method used to estimate expected volatility or expected life was more reasonable than our current methods, or if another method for calculating these input assumptions was prescribed by authoritative guidance, the fair value calculated for share-based awards could change significantly. Higher volatility and longer expected lives result in an increase to share-based compensation determined at the date of grant.

In addition, SFAS 123(R) requires us to develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported share-based compensation, as the cumulative effect of adjusting the rate for all expense amortization after April 1, 2006 is recognized in the period the forfeiture estimate is changed. We estimate and adjust forfeiture rates based on a quarterly review of recent forfeiture activity and expected future employee turnover. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the expense recognized in the financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the expense recognized in the financial statements. These adjustments affect our selling, general and administrative expenses. The effect of forfeiture adjustments in fiscal 2007 was insignificant. Cumulative adjustments are recorded to the extent that the related expense is recognized in the financial statements, beginning with implementation in the first quarter of fiscal 2007. Therefore, we expect the potential impact from cumulative forfeiture adjustments to increase in future periods. The expense that we recognize in future periods could also differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.

Accounting Changes

Stock Compensation Expense. See Note 3, “Employee Equity Incentive Plans” of Notes to Consolidated Financial Statements elsewhere in this report for the effects of the adoption of SFAS 123(R).

Funded Status of Employee Benefit Plans. See Note 10, “Pension Plans” of Notes to Consolidated Financial Statements elsewhere in this report for the effects of the adoption of SFAS No. 158 “Employer’s Accounting for Defined Benefit Pension and Other Retirement Plans.”

Inventories. Effective April 1, 2006, we adopted SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS 151 requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. The application of SFAS 151 did not have a material impact on our consolidated financial statements.

Recent Accounting Developments

In June 2006, Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions,” or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are still assessing the impact of adoption of FIN 48. Based on the preliminary analysis, management believes that adoption will result in recording a decrease to retained earnings between $1.9 million and $3.2 million in the first quarter of fiscal 2008. However, the final analysis will be completed in the first quarter of fiscal 2008.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements,” or SFAS 157. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, or GAAP, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS 157 is effective for our company beginning in the first quarter of fiscal 2009. We are currently evaluating the impact of SFAS 157 to our financial position and results of operations.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for our company beginning in the first quarter of fiscal 2009,

although earlier adoption is permitted. We do not believe that adoption of SFAS 159 will have a material impact on our consolidated financial position, results of operations or cash flows.

Results of Operations

The following table sets forth selected consolidated statement of operations data for the fiscal years indicated and the percentage change in such data from year to year:


	Years Ended March 31,
				% Change					% Change
				from 2006					from 2005
	2007			to 2007			2006		to 2006			2005
	(000)						(000)					(000)

Net revenues	$	285,908			13.7		$	251,487		(2.0	)	$	256,620
Cost of goods sold		201,577			18.7			169,792		(3.9	)		176,710

Gross profit	$	84,331			3.2		$	81,695		2.2		$	79,910

Operating expenses:
Research, development and engineering	$	20,105			14.7		$	17,523		(5.7	)	$	18,574
Selling, general and administrative		44,134			15.0			38,371		7.5			35,707
Litigation provision		(29,435	)		(168.8	)		42,810		nm			—

Total operating expenses	$	34,804			(64.7	)	$	98,704		81.8		$	54,281

nm — not meaningful

The following table sets forth selected statement of operations data as a percentage of net revenues for the fiscal years indicated. These historical operating results may not be indicative of the results for any future period.


	Years Ending March 31,
	2007			2006			2005
	% of Net			% of Net			% of Net
	Revenues			Revenues			Revenues

Net revenues		100.0			100.0			100.0
Cost of goods sold		70.5			67.5			68.9

Gross profit		29.5			32.5			31.1

Operating expenses:
Research, development and engineering		7.0			7.0			7.2
Selling, general and administrative		15.4			15.3			13.9
Litigation provision		(10.2	)		17.0			—

Total operating expenses		12.2			39.3			21.1

Operating income (loss)		17.3			(6.8	)		10.0
Other income (expense), net		(0.4	)		1.6			—

Income (loss) before (provision for) benefit from income tax		16.9			(5.2	)		10.0
(Provision for) benefit from income tax		(6.3	)		2.7			(3.7	)

Net income (loss)		10.6			(2.5	)		6.3

Revenues

The following table sets forth the revenues for each of our product groups for fiscal 2007, 2006 and 2005:


	Year Ended March 31,
			% Change				% Change
			from 2006 to				from 2005 to
	2007		2007		2006		2006			2005
	(000)				(000)					(000)

Power Semiconductors	$	207,523		8.6	$	191,105		(2.1	)	$	195,148
ICs		56,212		35.5		41,493		1.8			40,759
Systems and RF Power Semiconductors		22,173		17.4		18,889		(8.8	)		20,713

Total	$	285,908		13.7	$	251,487		(2.0	)	$	256,620

Average Selling Price (ASPs)

The following tables set forth the average selling prices, or ASPs, and units for fiscal 2007, 2006 and 2005:


	Year Ended March 31,
			% Change					% Change
			from 2006 to					from 2005 to
	2007		2007			2006		2006			2005

Power Semiconductors	$	1.96		(13.7	)	$	2.27		2.3		$	2.22
ICs	$	0.48		(42.2	)	$	0.83		(4.6	)	$	0.87
Systems and RF Power Semiconductors	$	14.02		8.4		$	12.94		(11.4	)	$	14.60

Units


	Year Ended March 31,
			% Change				% Change
			from 2006 to				from 2005 to
	2007		2007		2006		2006			2005
	(000)				(000)					(000)

Power Semiconductors		105,820		25.8		84,117		(4.2	)		87,846
ICs		116,079		132.3		49,970		6.2			47,054
Systems and RF Power Semiconductors		1,582		8.4		1,460		2.9			1,419

Total		223,481		64.9		135,547		(0.6	)		136,319

The 13.7% increase in net revenues from fiscal 2006 to fiscal 2007 resulted primarily from an increase in sales of power semiconductors and ICs. The increase in the sale of power semiconductors was primarily due to an increase in sales of bipolar products of $16.4 million, principally to the industrial and commercial market. The increase in IC sales was primarily due to an increase in sales of ASICs of approximately $7.1 million, and an increase of $5.8 million in sales of ICs to the telecom market. Revenues from the sale of systems and RF power semiconductors in fiscal 2007 as compared to fiscal 2006 grew due to an increase of $5.3 million in the sale of subassemblies, partially offset by a $2.0 million decrease in revenues from sales of our RF devices.

The decrease in the ASPs of our power semiconductors and ICs in fiscal 2007 as compared to fiscal 2006 was primarily due to a shift in product mix and a substantial increase in the sale of low-price units of ASIC devices. The increase in the number of units sold was principally due to an increase in shipments of ASICs for the consumer products market and power semiconductors for the industrial and commercial markets. The increase in ASPs units for systems and RF semiconductors resulted from a shift towards the sale of subassemblies.

The 2.0% decline in net revenues from fiscal 2005 to fiscal 2006 resulted primarily from a reduction in our revenues from the sale of power semiconductors and of systems and RF power semiconductors. The decline in our revenues from power semiconductors was related to a decline in the number of units sold. The decline in units was

offset by an increase in ASPs in large part as the result of a shift in our product mix, as shipments of product for inclusion in plasma display panels declined while shipments for the medical market increased. Revenues in systems and RF power semiconductors declined by $1.8 million principally due to substantial price erosion in RF power semiconductors and the loss of a significant customer for RF power semiconductors. Integrated circuit revenues increased slightly as a consequence of an increase in unit shipments. The increase in unit shipments was partially offset by a decrease in ASPs caused by price erosion across the standard product line.

For fiscal 2007, sales to customers in the United States represented approximately 27.5% and sales to international customers represented approximately 72.5%, of our net revenues. Of our international sales in fiscal 2007, approximately 52.1% were derived from sales in Europe and the Middle East, approximately 41.4% were derived from sales in Asia and approximately 6.5% were derived from sales in Canada and the rest of the world. By comparison, for fiscal 2006, sales to customers in the United States represented approximately 31.5%, and sales to international customers represented approximately 68.5%, of our net revenues. Of our international sales in fiscal 2006, approximately 48.5% were derived from sales in Europe and the Middle East, approximately 44.2% were derived from sales in Asia and approximately 7.3% were derived from sales in Canada and the rest of the world. In fiscal 2005, sales to customers in the United States represented approximately 28.2%, and sales to international customers represented approximately 71.8%, of our net revenues. Of our international sales in fiscal 2005, approximately 46.3% were derived from sales in Europe and the Middle East, approximately 47.2% were derived from sales in Asia and approximately 6.5% were derived from sales in Canada and the rest of the world. From fiscal 2006 to fiscal 2007, our revenues in the United States decreased because of a decrease in sales to the medical market and a shift by our U.S. based customers to manufacturing overseas. The revenues in Europe and the Middle East increased in fiscal 2007 as compared to fiscal 2006 because of increased demand in the industrial and commercial market, the strengthening of the European economy and the depreciation of the dollar against the pound and the euro. Our revenues in Asia increased due to a shift in product mix and a movement to overseas production by U.S. based companies. From fiscal 2005 to fiscal 2006, our revenues in the United States increased because of increased sales into the medical market, our revenues in Europe declined slightly in large part because of the appreciation of the dollar against the pound sterling and the euro and, because of a decline in sales to the consumer products market, our revenues in Asia declined substantially in the first half of the year and then stabilized.

None of our customers accounted for more than 10% of our net revenues in fiscal 2007 or fiscal 2006. In fiscal 2005, one customer, Samsung SDI Co., Ltd. accounted for more than 10% of our net revenues.

In each of the three fiscal years, our revenues were reduced by allowances for sales returns, stock rotations and ship and debit. See “Critical Accounting Policies and Significant Management Estimates” elsewhere in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Gross Profit.

From fiscal 2006 to fiscal 2007, gross profit increased by $2.6 million. The gross profit margin decreased from 32.5% to 29.5%, primarily due to write-offs of excess inventory, production inefficiencies during the fiscal year and the decline in revenues in power semiconductors as a percentage of total revenues, including from the higher margin medical market. The additional reserve accrual for excess inventories in fiscal 2007 was $7.0 million, as compared to $4.0 million in fiscal 2006. Medical market revenues as percentage of total net revenues declined to 12.3% in fiscal 2007 from 14.5% in fiscal 2006. The reduction in gross margin was partially offset by the sale of fully reserved inventory.

From fiscal 2005 to fiscal 2006, gross profit increased by $1.8 million and gross profit margin increased from 31.1% to 32.5%, primarily as the result of a shift in our product mix towards higher margin semiconductors for the medical market and away from lower margin semiconductors for plasma display panels.

In each of the three years, our gross profit and gross profit margin were increased by the sale of excess inventory, which had previously been written down. See “Critical Accounting Policies and Significant Management Estimates — Inventories” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Research, Development and Engineering.

Research, development and engineering, or R&D, expenses typically consist of internal engineering efforts for product design and development. From fiscal 2006 to fiscal 2007, R&D expenses increased by $2.6 million. The increase is principally due to a general increase in spending for the design, layout and testing of integrated circuits and power semiconductors. Expressed in terms of percentage of revenues our R&D expenses remained at 7.0% for fiscal 2007 and 2006. From fiscal 2005 to fiscal 2006, R&D expenses decreased by $1.0 million and declined slightly from 7.2% to 7.0% as a percentage of revenues due to a substantial decline in our R&D expenses related to gallium arsenide products. Although R&D expenses may increase as we fund more development projects, we do not expect a material increase in such expenses when expressed as a percentage of revenues.

Selling, General and Administrative.

In fiscal 2007 as compared to fiscal 2006, selling, general and administrative expenses increased by $5.8 million and from 15.3% to 15.4% as a percentage of net revenues. The increases were principally the result of an increase in professional and consulting expenses of $2.3 million, recognition of stock compensation expenses of $2.0 million upon adoption of SFAS 123(R), an increase of bad debt expenses of $1.3 million from the write-off of the receivables from All American Semiconductor, Inc. and an increase in personnel costs due to the increase in headcount. In fiscal 2006 as compared to fiscal 2005, selling, general and administrative expenses increased principally due to increased litigation expenses and increased professional and consulting expenses. Litigation expenses increased by $725,000 from fiscal 2005 to fiscal 2006 and professional and consulting expenses increased by $2.6 million. While selling, general and administrative expenses may increase in future periods, we do not expect a material increase in such expenses when expressed as a percentage of revenue.

Litigation Provision.

For the year ended March 31, 2007, we accrued $6.8 million related to our ongoing litigation against International Rectifier Corporation. We released a net amount of $36.2 million from the litigation reserve that we established for the LoJack Corporation lawsuit, as the court reduced the amount of damages from $36.7 million to $4.0 million. For the year ended March 31, 2006, we recorded a litigation provision of $42.8 million, reflecting an estimate of the potential loss in the LoJack litigation. See Item 3 for a description of the current status of these litigation matters.

Other Income (Expense), Net.

In fiscal 2007, other expense, net, including interest income, net, and changes in foreign currency transactions, was $1.3 million, as compared to other income, net of $4.0 million in fiscal 2006 and $152,000 in fiscal 2005. The shift to other expense, net, from fiscal 2006 to fiscal 2007 occurred principally due to the decline of the dollar as compared to the Euro, partially offset by proceeds from an insurance claim. Other income, net, increased from fiscal 2005 to fiscal 2006 principally because of an increase in interest income, net and the inclusion of $510,000 for our share in equity income of an investment accounted for under the equity method.

Interest income, net, was $1.8 million in fiscal 2007 as compared to $2.2 million in fiscal 2006 and $633,000 in fiscal 2005. Interest income, net, declined because of an increase in interest expense on capital leases, as we acquired capital equipment in Europe.

Provision for (Benefit from) Income Taxes.

In fiscal 2007, the provision for income taxes reflected an effective tax rate of 37% as compared to a benefit from income taxes reflecting an effective tax rate of 53% in fiscal 2006, and a provision for income taxes reflecting an effective tax rate of 37% in fiscal 2005. The fiscal 2007 tax rate was reduced from the statutory tax provision rate of 38% primarily due to adjustments recorded to our deferred tax assets and liabilities for a benefit of 1%. The fiscal 2006 tax benefit rate was increased from the statutory tax rate of 44% due to the release of valuation allowances booked against deferred tax assets for a benefit of 175%, the write-off of non-utilizable net operating losses for a provision of 175%, and other tax benefits of 9%. The fiscal 2005 tax rate was increased from the statutory tax provision rate of 36% primarily due to adjustments in valuation allowance offset by tax credits.

We are in the process of implementing tax planning strategies in the form of migrating intellectual property rights to lower tax jurisdictions. This may cause future effective tax rates to fluctuate from year to year.

Liquidity and Capital Resources

As of March 31, 2007, cash and cash equivalents were $54.0 million as compared to $78.2 million at March 31, 2006 and $58.1 million at March 31, 2005. The decrease in cash and cash equivalents in fiscal 2007 as compared to fiscal 2006 was primarily due to inventory buildup of $23.8 million and stock repurchases of $18.4 million. The increase in cash and cash equivalents during fiscal 2006 as compared to fiscal 2005 was primarily due to cash generated by operations and a loan of $12 million. Over the past three fiscal years, the cash generated by our operations has provided sufficient liquidity for our needs.

Our cash provided by operating activities in fiscal 2007 was $1.9 million as compared to $31.1 million in fiscal 2006 and $23.4 million in fiscal 2005. During fiscal 2007, the principal working capital use of cash was to fund inventories. Our net inventory at March 31, 2007 increased from March 31, 2006 by 42.4%, principally to meet our customers’ demand for shorter lead times. During the period, amounts related to accounts receivable increased by $9.5 million and were offset by increases in reserves for accounts receivable, which included the write-off of the All American Semiconductor receivable after it filed for bankruptcy. Litigation reserve decreased by 67.5% due to a non-cash reduction in the net amount of $36.2 million from the litigation reserve that we established in fiscal 2006 for the LoJack Corporation lawsuit. Deferred income taxes, net showed a non-cash reduction of 34.7%, principally in connection with the reduction in the litigation reserve. Accrued expenses and other liabilities decreased from March 31, 2006 to March 31, 2007 by 23.3%, principally because of payment of foreign income tax liabilities. One customer accounted for 10.6% of our receivables at March 31, 2007. In fiscal 2006, working capital was principally used to fund inventory and accounts receivable. In fiscal 2005, working capital was principally used to fund accounts receivable in connection with the growth in revenues.

We used $8.9 million in net cash for investing activities during fiscal 2007, as compared to $20.8 million used in investing activities in fiscal 2006 and $5.0 million used in investing activities in fiscal 2005. In all three fiscal years, our uses of cash for investing activities reflected principally the purchase of plant and equipment. During fiscal 2007, we spent $9.5 million on capital expenditures, as compared to $18.6 million in fiscal 2006 and $6.0 million in fiscal 2005. In fiscal 2007 and 2005, the capital expenditures were principally for equipment required to increase our production capacity. In fiscal 2006, the capital expenditure was primarily for the purchase of two buildings. Except for the expected expenditure of $7.5 million for the purchase of a building, we expect capital expenditures during fiscal 2008 to be similar to the capital expenditures of fiscal 2007.

For fiscal 2007, net cash used in financing activities was $20.1 million, as compared to net cash provided by financing activities of $11.2 million in fiscal 2006 and net cash used in financing activities of $2.7 million in fiscal 2005. In fiscal 2007, we spent $18.4 million to purchase treasury stock. During fiscal 2006, we received $17.9 million from a €10 million, or $12 million, loan and from the exercise of options. During fiscal 2005, we used cash in financing activities principally to pay capital lease obligations. In addition, in fiscal 2005 we used $1.1 million to purchase our common stock and $800,000 to repay our note payable to the bank.

Another potential source of liquidity is available borrowings under existing lines of credit. At March 31, 2007, we had available credit aggregating $3.3 million.

At March 31, 2007, our debt, consisting of capital lease obligations and loans payable, was $22.5 million, representing 41.6% of our cash and cash equivalents and 12.4% of our stockholders equity. Over the past three fiscal years, satisfying our payment obligations for debt has not materially affected our ability to fund our operating needs.

We are obligated on a €10.0 million loan. The loan has a term of 15 years and bears a variable interest rate, dependent upon the current Euribor rate and the calculation of a ratio of indebtedness to cash flow for the German subsidiary. Each fiscal quarter during the first five years of the loan, a principal payment of €167,000, or about $223,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed. Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At March 31, 2007, the

Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.

At March 31, 2007, we maintain two defined benefit pension plans: one for the United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. We deposit funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrue for the unfunded portion of the obligations. Both plans have been curtailed. See Note 10, “Pension Plans” of Notes to Consolidated Financial Statements for a discussion of the investment return assumptions, the underlying estimates and the expected future cash flows associated with the pension plans.

As of March 31, 2007, we had $54 million in cash and cash equivalents. In January 2007, we entered into an agreement to purchase a building, to be used as our corporate offices and facility for Silicon Valley operations, for approximately $7.5 million. The purchase price is expected to be paid through the assumption of indebtedness in a like amount. The transaction is expected to be completed in July 2007. We believe that our cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash requirement for the next 12 months. Our liquidity could be negatively affected by a decline in demand for our products, the need to invest in new product development, one or more acquisitions or the payment of damages and related interest and attorneys’ fees, including the damages of at least $6.8 million awarded to International Rectifier and the potential loss of $7.4 million in the LoJack litigation. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us.

Disclosures about Contractual Obligations and Commercial Commitments

Details of our contractual obligations and commitments as of March 31, 2007 to make future payments under contracts are set forth below (in thousands):


	Payments Due by Period
			Less Than						After 5
Contractual Obligations(1)(2)	Total		1 Year		1-3 Years		3-5 Years		Years

Long term debt(3)	$	12,124	$	1,012	$	11,112	$	—	$	—
Capital Lease Obligations(4)		11,306		4,195		5,933		1,178		—
Operating Lease Obligations		12,328		1,606		2,153		1,608	$	6,961
Inventory Purchase Obligations(5)		43,832		27,082		8,500		6,000		2,250
Other Liabilities		—		—		—		—		—

Total	$	79,590	$	33,895	$	27,698	$	8,786	$	9,211


(1)		The amount accrued in connection with litigations against LoJack Corporation and International Rectifier Corporation of $14.2 million, classified under current liability in our Consolidated Balance Sheet, has not been considered in this disclosure. See Note 6, “Commitments and Contingencies,” in Notes to Consolidated Financial Statements. In January 2007, we entered into an agreement to purchase a building, to be used as our corporate offices and facility for Silicon Valley operations, for approximately $7.5 million. The transaction is expected to be completed in July 2007.

(2)		Contractual obligations shown in the table above exclude benefit payments to participants of our defined benefit pension plans. We summarize the estimated benefit payments to be made by the plans over the next ten years in Note 10, “Pension Plans” of Notes to Consolidated Financial Statements. The table also excludes contributions we made to defined benefit pension plans and our defined contribution plan. Our future contributions to these plans depend on many uncertain factors including future returns on the defined benefit plan assets and the amount and timing of employee and discretionary employer contributions to the defined contribution plan. We provide additional information about our defined benefit pension plans, defined contribution plan, in Note 8, “Employee Savings and Retirement Plan” and Note 10, “Pension Plans” of Notes to Consolidated Financial Statements.

(3)		Includes borrowing where the repayment terms are to be renegotiated in fiscal 2011.


(4)		Includes anticipated interest payments totaling $960,000.

(5)		Represents commitments for purchase of inventory and plant and equipment. These were not recorded as liabilities on our Consolidated Balance Sheet as of March 31, 2007, as we had not yet received the related goods or taken title to the property. Inventory purchase obligations increased from $18.9 million at March 31, 2006 to $43.8 million at March 31, 2007, primarily due to the execution of long-term contracts for the purchase of key raw materials.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various risks, including fluctuations in interest and foreign currency rates. In normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risks, credit risks and legal risks that are not discussed or quantified in the following analyses.

We currently keep our funds in accounts and instruments that, for accounting purposes, are cash and cash equivalents and do not carry interest rate risk to the fair market value of principal. We may, in the future, choose to place our funds in investments in high quality debt securities, potentially consisting of debt instruments of the United States or state or local governments or investment grade corporate issuers. Investments in both fixed and floating rate securities have some degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted by increases in interest rates. Floating rate securities may produce less income than anticipated if interest rates fall. As a result, changes in interest rates could cause us to incur losses in principal if we are forced to sell securities that have declined in market value or may result in lower than anticipated investment income.

We intend to manage our exposure to interest rate, market and credit risk in any investment portfolio with investment policies and procedures that limit such things as term, credit rating and the amount of credit exposure to any one issue, issuer and type of instrument. We have not used derivative financial instruments in any investment portfolio.

The impact on the fair market value of our cash equivalents and our earnings from a hypothetical 100 basis point adverse change in interest rates, determined as of the end of fiscal 2007, would have had the effect of decreasing our net income for fiscal 2007 by an amount less than $1.0 million. As our cash and cash equivalents have historically been held in accounts and instruments where the principal is not subject to interest rate risk and our cash and cash equivalents greatly exceed our variable rate borrowings, this sensitivity analysis was accomplished by offsetting our variable rate borrowings against our cash and cash equivalents and then estimating the impact of a 100 basis point reduction in interest rates on such adjusted cash balances.

Revenues from our foreign subsidiaries were approximately 45.2% of total revenues in fiscal 2007. These revenues come from our German and UK subsidiaries and are primarily denominated in Euros and British pounds, respectively. Our risk to European currencies is partially offset by the natural hedge of manufacturing and selling goods in local currency. Our foreign subsidiaries also incur most of their expenses in the local currency. Our principal foreign subsidiaries use their respective local currencies as their functional currency.

Although we have in the past entered into a limited number of foreign exchange forward contracts to help manage foreign currency exchange risk associated with certain of our operations, we do not generally hedge foreign currency exchange rates. The foreign exchange forward contracts we have entered into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results. We did not have any open foreign exchange forward contracts at March 31, 2007.

We have foreign currency rate risk and interest rate risk from a €10 million, or approximately $12 million, loan taken by IXYS Semiconductor GmbH, a German subsidiary of IXYS, from IKB Deutsche Industriebank for a term of 15 years.

The interest rate on the loan is determined by adding the then effective 3-month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, then the Euribor rate for the purposes of the loan shall be 4.1%, and, if the Euribor rate falls below 2%, the Euribor rate for the purposes of the loan shall be 3%. Thereafter, the interest rate is recomputed annually. The interest rate at

March 31, 2007 was 4.8%. See Note 2, “Summary of Significant Accounting Policies” to the Condensed Consolidated Financial Statements for further information regarding fair value.

Each fiscal quarter during the first five years of the loan, a principal payment of €167,000, or about $223,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

A hypothetical 10% adverse change in the value of the Euro against the U.S. dollar and the British pound against the U.S. dollar, determined as of the end of fiscal 2007, would have had the effect of decreasing our net income for fiscal 2007 by an amount less than $1.0 million.

Because of the operation of our principal foreign units in their own functional currencies, this sensitivity analysis was undertaken by examining the net income or loss of the foreign units incorporated into our statement of operations and testing the impact of the hypothetical change in exchange rates on such income or loss. The hypothetically derived net income or loss of the foreign units was then calculated with our statement of operations data to derive the hypothetical impact on our net income.

It is possible that our future financial results could be directly affected by changes in foreign currency exchange rates. We will continue to face foreign currency exchange risk in the future. Therefore, our financial results could be directly affected by weak economic conditions in foreign markets. In addition, a strengthening of the U.S. dollar, the Euro or the British pound could make our products less competitive in foreign markets.


Item 8.	*Financial Statements and Supplementary Data*

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders,

IXYS Corporation

Santa Clara, California

We have audited the accompanying consolidated balance sheets of IXYS Corporation as of March 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for each of the three years in the period ended March 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IXYS Corporation as of March 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of IXYS Corporation’s internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 14, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.

As more fully described in Notes 3 and 10 to the Consolidated Financial Statements, on April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” and at March 31, 2007, the Company adopted Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).”

BDO Seidman, LLP

San Francisco, California

June 14, 2007

IXYS CORPORATION

CONSOLIDATED BALANCE SHEETS


	March 31,
	2007			2006
	(In thousands, except share data)

ASSETS
Current assets:
Cash and cash equivalents	$	54,027		$	78,192
Restricted cash		169			313
Accounts receivable, net of allowances of $2,847 in 2007 and $2,609 in 2006		42,519			42,774
Inventories		85,965			60,357
Prepaid expenses and other current assets		3,268			4,121
Deferred income taxes		14,345			25,049

Total current assets		200,293			210,806
Property, plant and equipment, net		48,741			40,049
Other assets		5,319			5,099
Deferred income taxes		12,827			16,552
Goodwill		6,461			7,481

Total assets	$	273,641		$	279,987


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capitalized lease obligations	$	3,686		$	2,255
Current portion of loans payable		1,012			973
Accounts payable		19,926			20,259
Accrued expenses and other liabilities		19,081			24,889
Litigation reserve		14,180			43,615

Total current liabilities		57,885			91,991
Capitalized lease obligations, net of current portion		6,660			3,762
Long term loans, net of current portion		11,112			10,685
Pension liabilities		16,875			13,576

Total liabilities		92,532			120,014

Commitments and contingencies (Note 6)
Stockholders’ equity
Preferred stock, $0.01 par value:
Authorized: 5,000,000 shares; none issued and outstanding		—			—
Common stock, $0.01 par value:
Authorized: 80,000,000 shares; 35,031,947 issued and 32,512,039 outstanding and 34,677,834 issued and 34,152,343 outstanding at March 31, 2007 and 2006, respectively		350			347
Additional paid-in capital		165,889			161,118
Treasury stock, at cost: 2,519,908 and 525,491 common shares at March 31, 2007 and 2006, respectively		(22,851	)		(4,454	)
Notes receivable from stockholders		—			(59	)
Retained earnings (accumulated deficit)		29,605			(614	)
Accumulated other comprehensive income		8,116			3,635

Total stockholders’ equity		181,109			159,973

Total liabilities and stockholders’ equity	$	273,641		$	279,987

The accompanying notes are an integral part of these consolidated financial statements.

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS


	Year Ended March 31,
	2007			2006			2005
	(In thousands, except per share data)

Net revenues	$	285,908		$	251,487		$	256,620
Cost of goods sold		201,577			169,792			176,710

Gross profit		84,331			81,695			79,910

Operating expenses:
Research, development and engineering		20,105			17,523			18,574
Selling, general and administrative		44,134			38,371			35,707
Litigation provision		(29,435	)		42,810			—

Total operating expenses		34,804			98,704			54,281

Operating income (loss)		49,527			(17,009	)		25,629
Other income (expense):
Interest income		2,813			2,504			1,341
Interest expense		(1,020	)		(322	)		(708	)
Other (expense) income, net		(3,081	)		1,810			(481	)

Income (loss) before income tax		48,239			(13,017	)		25,781
(Provision for) benefit from income tax		(18,020	)		6,911			(9,539	)

Net income (loss)	$	30,219		$	(6,106	)	$	16,242

Net income (loss) per share — basic	$	0.90		$	(0.18	)	$	0.49

Weighted average shares used in per share calculation — basic		33,505			33,636			33,093

Net income (loss) per share — diluted	$	0.87		$	(0.18	)	$	0.46

Weighted average shares used in per share calculation — diluted		34,784			33,636			35,085

The accompanying notes are an integral part of these consolidated financial statements.

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


																					Accumulated
															Retained Earnings						Other
					Additional		Treasury		Treasury			Notes Receivable			(Accumulated			Deferred			Comprehensive			Total Stockholders’
	Shares		Amount		Paid-in Capital		Shares		Amount			from Stockholders			Deficit)			Compensation			Income			Equity
	(In thousands)

Balances, March 31, 2004		33,019	$	331	$	151,074		95	$	(447	)	$	(1,388	)	$	(10,750	)	$	(10	)	$	6,721		$	145,531
Exercise of stock options		480		4		1,509		—		—			—			—			—			—			1,513
Issuance of common stock under Employee Stock Purchase Plan		87		1		614		—		—			—			—			—			—			615
Interest accrued on notes receivable		—		—		60		—		—			(60	)		—			—			—			—
Compensation expense on shareholder loans		—		—		119		—		—			—			—			—			—			119
Repayment of notes receivable		—		—		—		—		—			1,039			—			—			—			1,039
Interest forgiven on notes receivable		—		—		—		—		—			54			—			—			—			54
Amortization of deferred compensation		—		—		—		—		—			—			—			6			—			6
Repurchase of common stock		—		—		—		132		(1,105	)		—			—			—			—			(1,105	)
Foreign currency translation adjustments		—		—		—		—		—			—			—			—			1,263			1,263
Net income		—		—		—		—		—			—			16,242			—			—			16,242

Balances, March 31, 2005		33,586		336		153,376		227		(1,552	)		(355	)		5,492			(4	)		7,984			165,277
Exercise of stock options		1,014		10		4,582		—		—			—			—			—			—			4,592
Issuance of common stock under employee stock purchase plan		78		1		687		—		—			—			—			—			—			688
Tax benefit on employee equity incentive plan		—		—		2,465		—		—			—			—			—			—			2,465
Purchase of treasury stock		—		—		—		298		(2,902	)		—			—			—			—			(2,902	)
Amortization of deferred compensation		—		—		—		—		—			—			—			4			—			4
Interest accrued on notes receivable		—		—		8		—		—			(8	)		—			—			—			—
Repayment of note receivable		—		—		—		—		—			304			—			—			—			304
Unrealized gain on available-for-sale investments net of taxes		—		—		—		—		—			—			—			—			327			327
Foreign currency translation adjustments		—		—		—		—		—			—			—			—			(3,517	)		(3,517	)
Minimum pension liability, net of taxes		—		—		—		—		—			—			—			—			(1,159	)		(1,159	)
Net loss		—		—		—		—		—			—			(6,106	)		—			—			(6,106	)

Balances, Mar. 31, 2006		34,678		347		161,118		525		(4,454	)		(59	)		(614	)		—			3,635			159,973

The accompanying notes are an integral part of these consolidated financial statements.

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


																				Accumulated
															Retained Earnings					Other
					Additional		Treasury		Treasury			Notes Receivable			(Accumulated			Deferred		Comprehensive			Total Stockholders’
	Shares		Amount		Paid-in Capital		Shares		Amount			from Stockholders			Deficit)			Compensation		Income			Equity
	(In thousands)

Balances, March 31, 2006		34,678	$	347	$	161,118		525	$	(4,454	)	$	(59	)	$	(614	)	$	—	$	3,635			159,973
Stock grants and exercise of stock options		275		2		1,550		—		—			—			—			—		—			1,552
Issuance of common stock under employee stock purchase plan		79		1		658		—		—			—			—			—		—			659
Share-based compensation		—		—		2,009		—		—			—			—			—		—			2,009
Tax benefit on employee equity incentive plan		—		—		554		—		—			—			—			—		—			554
Purchase of treasury stock		—		—		—		1,995		(18,397	)		—			—			—		—			(18,397	)
Repayment of note receivable		—		—		—		—		—			59			—			—		—			59
Unrealized gain on available-for-sale investments
net of taxes		—		—		—		—		—			—			—			—		317			317
Foreign currency translation adjustments		—		—		—		—		—			—			—			—		5,752			5,752
Minimum pension liability, net of taxes		—		—		—		—		—			—			—			—		(1,588	)		(1,588	)
Net income		—		—		—		—		—			—			30,219			—		—			30,219

Balances, Mar. 31, 2007		35,032	$	350	$	165,889		2,520	$	(22,851	)	$	—		$	29,605		$	—	$	8,116		$	181,109

The accompanying notes are an integral part of these consolidated financial statements.

IXYS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended March 31,
	2007			2006			2005
	(In thousands)

Cash flows from operating activities:
Net income (loss)	$	30,219		$	(6,106	)	$	16,242
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		10,499			8,543			10,639
Provision for receivables allowances		11,745			5,578			4,994
Net change in inventory reserves		1,581			6,434			2,917
Change in litigation reserve		(29,435	)		42,810			—
Foreign currency adjustments on intercompany amounts		491			194			1,399
Deferred income taxes		16,247			(14,426	)		7,885
Excess tax benefit from stock-based compensation		(554	)		—			—
Tax benefit from employee equity incentive plans		—			2,465			—
Compensation expense for notes from stockholders		—			4			119
Interest forgiven on notes from stockholders		—			—			54
Stock based compensation		2,009			—			—
(Gain) on disposal of investments		(631	)		—			—
Loss (gain) on disposal of plant and equipment		100			(2	)		225
Changes in operating assets and liabilities:
Accounts receivable		(9,534	)		(9,515	)		(12,568	)
Inventories		(23,824	)		(17,078	)		(5,286	)
Prepaid expenses and other current assets		1,017			1,371			(2,134	)
Other assets		334			826			(335	)
Accounts payable		(1,577	)		7,805			(2,702	)
Accrued expenses and other liabilities		(6,406	)		1,256			2,258
Pension liabilities		(398	)		984			(337	)

Net cash provided by operating activities		1,883			31,143			23,370

Cash flows from investing activities:
Change in restricted cash		144			(159	)		986
Purchases of investments		(239	)		(2,081	)		—
Purchases of plant and equipment		(9,478	)		(18,613	)		(5,952	)
Proceeds from sale of investments		708			—			—
Proceeds from sale of plant and equipment		—			97			—

Net cash used in investing activities		(8,865	)		(20,756	)		(4,966	)

Cash flows from financing activities:
Principal payments on capital lease obligations		(3,495	)		(3,204	)		(3,996	)
Repayments of notes payable from bank		—			—			(800	)
Proceeds from loans		—			12,344			—
Repayment of loans		(1,025	)		(608	)		—
Excess tax benefit from stock-based compensation		554			—			—
Purchases of treasury stock		(18,397	)		(2,902	)		(1,105	)
Proceeds from employee equity plans		2,211			5,280			2,128
Proceeds from collection of notes from stockholders		59			304			1,039

Net cash (used in) provided by financing activities		(20,093	)		11,214			(2,734	)

Effect of exchange rate fluctuations on cash and cash equivalents		2,910			(1,553	)		416

Net (decrease) increase in cash and cash equivalents		(24,165	)		20,048			16,086
Cash and cash equivalents at beginning of the year		78,192			58,144			42,058

Cash and cash equivalents at end of the year	$	54,027		$	78,192		$	58,144

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	1,018		$	322		$	149
Cash paid during the period for income taxes	$	8,786		$	1,008		$	721
Supplemental Disclosure of Noncash Investing and Financing Activities
Fixed assets acquired under capital lease	$	7,666		$	2,508		$	264

The accompanying notes are an integral part of these consolidated financial statements.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Formation and Business of IXYS:

IXYS Corporation (“IXYS” or the “Company”) designs, develops, manufactures and markets power semiconductors and digital and analog integrated circuits (“ICs”). Power semiconductors are used primarily in controlling energy in motor drives, power conversion (including uninterruptible power supplies (“UPS”) and switch mode power supplies (“SMPS”)) and medical electronics. IXYS’s power semiconductors convert electricity at relatively high voltage and current levels to create efficient power as required by a specific application. IXYS’s target market includes segments of the power semiconductor market that require medium to high power semiconductors, with a particular emphasis on high power semiconductors. IXYS’s power semiconductors include power metal oxide silicon field effect transistors (“Power MOSFETs”), insulated gate bipolar transistors (“IGBTs”), thyristors and rectifiers, including fast recovery epitaxial diodes (“FREDs”). IXYS’s ICs include solid-state relays (“SSRs”) for telecommunications applications and power management and control ICs, such as current regulators, motion controllers, digital power modulators and power MOSFET and IGBT drivers.

IXYS sells products in North America, Europe, and Asia through an organization that includes direct sales personnel, independent representatives and distributors. The Company is headquartered in Northern California with principal operations in California, Massachusetts, Germany and the United Kingdom. Each site has manufacturing, research and development and sales and distribution activities. The Company also makes use of subcontract manufacturers for fabrication of wafers and for assembly and test operations.


2.	Summary of Significant Accounting Policies:

Principles of Consolidation:

The consolidated financial statements include the accounts of IXYS and its wholly owned subsidiaries after elimination of all intercompany balances and transactions.

Foreign Currency Translation:

The local currency is considered to be the functional currency of IXYS’s wholly owned international subsidiaries: the euro for IXYS Semiconductor GmbH (“IXYS GmbH”); and the pound sterling for Westcode Semiconductors Limited (“Westcode”). Accordingly, assets and liabilities are translated at the exchange rate in effect at year-end and revenues and expenses are translated at average rates during the year. Adjustments resulting from the translation of the accounts of IXYS GmbH and Westcode into U.S. dollars are included in accumulated other comprehensive income, a separate component of stockholders’ equity. The Company’s Swiss subsidiary utilizes the US dollar as its functional currency. Foreign currency transaction gains and losses are included as a component of other income or expense.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from IXYS’s estimates.

Revenue Recognition:

IXYS complies with the guidance summarized in Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.”

Revenues are recognized upon shipment, provided that a signed purchase order has been received, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining significant obligations. Reserves for sales returns and allowances, including allowances for so called “ship and

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

debit” transactions, are recorded at the time of shipment, based on historical levels of returns and discounts, current economic trends and changes in customer demand. Transactions with sale terms of FOB shipping point are recognized when the products are shipped and transactions with sale terms of FOB destination are recognized upon arrival.

IXYS sells to distributors and original equipment manufacturers. Approximately 47% of the Company’s revenues in fiscal 2007 were from distributors. IXYS provides its distributors with the following programs: stock rotation and ship and debit. Ship and debit is a form of price protection. IXYS recognizes revenue from product sales upon shipment provided that it has received an executed purchase order, the price is fixed and determinable, the risk of loss has transferred, collection of resulting receivables is reasonably assured, there are no customer acceptance requirements, and there are no remaining significant obligations. Reserves for allowances are also recorded at the time of shipment. The management of IXYS must make estimates of potential future product returns and so called “ship and debit” transactions related to current period product revenue. Management analyzes historical allowance activity, current economic trends and changes in customer demand and acceptance of the Company’s products when evaluating the adequacy of the sales returns and allowances. Significant management judgments and estimates must be made and used in connection with establishing the allowances in any accounting period. Material differences may result in the amount and timing of the Company’s revenue for any period if management made different judgments or utilized different estimates.

Allowance for sales returns. IXYS maintains an allowance for sales returns for estimated product returns by its customers. The Company estimates its allowance for sales returns based on its historical return experience, current economic trends, changes in customer demand, known returns it has not received and other assumptions. If IXYS were to make different judgments or utilize different estimates, the amount and timing of its revenue could be materially different. Given that the Company’s revenues consist of a high volume of relatively similar products, to date its actual returns and allowances have not fluctuated significantly from period to period, and its returns provisions have historically been reasonably accurate. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations.

Allowance for stock rotation. The Company also provides “stock rotation” to select distributors. The rotation allows distributors to return a percentage of the previous six months’ sales. In the fiscal years ended March 31, 2007, 2006 and 2005 approximately $1.8 million, $962,000 and $1.1 million, respectively, of products were returned to IXYS under the program. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. IXYS establishes the allowance based upon maximum allowable rotations, which is management’s best estimate of future returns.

Allowance for ship and debit. Ship and debit is a program designed to assist distributors in meeting competitive prices in the marketplace on sales to their end customers. Ship and debit requires a request from the distributor for a pricing adjustment for a specific part for a customer sale to be shipped from the distributor’s stock. The Company has no obligation to accept this request. However, it is the Company’s historical practice to allow some companies to obtain pricing adjustments for inventory held. The Company receives periodic statements regarding its products held by distributors. IXYS’s distributors had approximately $2.9 million in inventory of the Company’s products on hand at March 31, 2007. Ship and debit authorizations may cover current and future distributor activity for a specific part for sale to the distributor’s customer. At the time the Company records sales to the distributors, it provides an allowance for the estimated future distributor activity related to such sales since it is probable that such sales to distributors will result in ship and debit activity. The sales allowance requirement is based on sales during the period, credits issued to distributors, distributor inventory levels, historical trends, market conditions, pricing trends IXYS sees in its direct sales activity with original equipment manufacturers and other customers, and input from sales, marketing and other key management. IXYS believes that the analysis of these inputs enables it to make reliable estimates of future credits under the ship and debit program. This analysis requires the exercise of significant judgments. Actual results to date have approximated the estimates. At the time the distributor ships the part from stock, the distributor debits IXYS for the authorized pricing adjustment. This

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

allowance is included as part of the accounts receivable allowance on the balance sheet and as a reduction of revenues in the statement of operations. If competitive pricing were to decrease sharply and unexpectedly, estimates would be insufficient, which could significantly adversely affect results.

Additions to the ship and debit allowance are estimates of the amount of expected future ship and debit activity related to sales during the period and reduce revenues and gross profit in the period. The following table sets forth the beginning and ending balances of, additions to, and deductions from, the allowance for ship and debit during the three years ended March 31, 2007 (in thousands):


Balance March 31, 2004	$	424
Additions		2,742
Deductions		(2,613	)

Balance March 31, 2005		553
Additions		2,300
Deductions		(2,400	)

Balance March 31, 2006		453
Additions		3,903
Deductions		(4,119	)

Balance March 31, 2007	$	237

Nonrecurring engineering (“NRE”): For NRE, related to engineering work performed by the Clare Micronix division to design chip prototypes that will later be used to produce required units, customers enter into arrangements with Clare Micronix to perform engineering work for a fixed fee. Clare Micronix records fixed-fee payments during the development phase from customers in accordance with Statement of Financial Accounting Standards, or “SFAS”, No. 68, “Research and Development Arrangements.” Amounts offset against research and development costs totaled approximately $355,000 in the fiscal year ended March 31, 2007 (“fiscal 2007”), $363,000 in fiscal 2006 and $161,000 in fiscal 2005.

IXYS states its revenues, net of any taxes collected from customers that are required to be remitted to the various government agencies. The amount of taxes collected from customers and payable to government is included under accrued expenses and other current liabilities. Shipping and handling costs are included in cost of sales.

Trade accounts receivable and allowance for doubtful accounts. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is IXYS’s best estimate of the amount of probable credit losses in the existing accounts receivable. IXYS determines the allowance based on the aging of its accounts receivable, the financial condition of its customers and their payment history, its historical write-off experience and other assumptions. The allowance for doubtful accounts is reviewed quarterly. Past due balances and other specified accounts as necessary are reviewed individually. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. This allowance is included as part of the accounts receivable allowance on the balance sheet and as a selling, general and administrative expense in the statement of operations.

Cash and Cash Equivalents:

IXYS considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash equivalents include investments in commercial paper and money market accounts at banks.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Cash:

Cash and cash equivalents at March 31, 2007 and March 31, 2006 include restricted cash balances of $169,000 and $313,000, respectively. The restricted cash balances include amounts pledged as collateral on outstanding letters of credit.

Inventories:

Inventories, consisting primarily of wafers, bipolar devices, transistors, diodes and integrated circuits, are recorded at the lower of a currently adjusted standard cost, which approximates actual cost on a first-in-first-out basis, or market value. The Company’s accounting for inventory costing is based on the applicable expenditure incurred, directly or indirectly, in bringing the inventory to its existing condition. Such expenditures include acquisition costs, production costs and other costs incurred to bring the inventory to its use. As it is impractical to track inventory from the time of purchase to the time of sale for the purpose of specifically identifying inventory cost, inventory is therefore valued based on a standard cost, given that the materials purchased are identical and interchangeable at various production processes. Effective April 1, 2006, the Company adopted SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” SFAS 151 requires certain abnormal expenditures to be recognized as expenses in the current period versus being capitalized in inventory. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facilities. The application of SFAS 151 did not have a material impact on the Company’s consolidated financial statements. IXYS reviews its standard costs on an as-needed basis but in any event at least once a year, and updates them as appropriate to approximate actual costs.

The Company typically plans its production and inventory levels based on internal forecasts of customer demand, which are highly unpredictable and can fluctuate substantially. The value of its inventories is dependent on its estimate of future demand as it relates to historical sales. If the Company’s projected demand is over-estimated, IXYS may be required to reduce the valuation of its inventories below cost. IXYS regularly reviews inventory quantities on hand and records an estimated provision for excess inventory based primarily on its historical sales and expectations for future use. For example, IXYS performs an analysis of inventories and compares the sales for the preceding two years. To the extent the Company has inventory in excess of the greater of two years’ historical sales, twice the most recent year’s historical sales or backlog, it recognizes a reserve for excess inventories. However, for new products, the Company does not consider whether there is excess inventory until it develops sufficient sales history or experiences a significant change in expected product demand, based on backlog. Actual demand and market conditions may be different from those projected by IXYS’s management. This could have a material effect on the Company’s operating results and financial position. If IXYS were to make different judgments or utilize different estimates, the amount and timing of the write-down of inventories could be materially different.

Excess inventory frequently remains saleable. When excess inventory is sold, it yields a gross profit margin of up to 100%. Sales of excess inventory have the effect of increasing the gross profit margin beyond that which would otherwise occur, because of previous write-downs. Once inventory is written down below cost, it is not written up. IXYS does not physically segregate excess inventory and assign unique tracking numbers to it in the Company’s accounting systems. Consequently, IXYS cannot isolate the sales prices of excess inventory from the sales prices of non-excess inventory. Therefore, IXYS is unable to report the amount of gross profit resulting from the sale of excess inventory or quantify the favorable impact of such gross profit on its gross profit margin.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides information on the Company’s excess inventory at cost (which has been fully reserved in the Company’s financial statements), including the sale of excess inventory valued at cost (in thousands):


Balance at March 31, 2004	$	24,632
Sale of excess inventory		(3,685	)
Scrap of excess inventory		(2,555	)

Balance of excess inventory		18,392
Additional accrual of excess inventory		2,849

Balance at March 31, 2005		21,241
Sale of excess inventory		(1,991	)
Scrap of excess inventory		(3,860	)

Balance of excess inventory		15,390
Additional accrual of excess inventory		3,987

Balance at March 31, 2006		19,377
Sale of excess inventory		(4,246	)
Scrap of excess inventory		(3,273	)

Balance of excess inventory		11,858
Additional accrual of excess inventory		6,971

Balance at March 31, 2007	$	18,829

The practical efficiencies of wafer fabrication require the manufacture of semiconductor wafers in minimum lot sizes. Often, when manufactured, the Company does not know whether or when all the semiconductors resulting from a lot of wafers will sell. With more than 9,000 different part numbers for semiconductors, excess inventory resulting from the manufacture of some of those semiconductors will be continual and ordinary. Because the cost of storage is minimal when compared to potential value and because the products of the Company do not quickly become obsolete, IXYS expects to hold excess inventory for potential future sale for years. Consequently, IXYS has no set time line for the sale or scrapping of excess inventory.

In addition, the inventory of the Company is also being written down to lower of cost or market or net realizable value. IXYS reviews its inventory listing on a quarterly basis for an indication of losses being sustained for costs that exceed selling prices less direct costs to sell. When it is evident that the selling price is lower than current cost, the inventory is marked down accordingly. At March 31, 2007 and 2006, the Company’s lower of cost or market reserve was $615,000 and $260,000, respectively.

The Company has entered in to purchase agreements for purchase of wafers and substrates over two to six years. Under these agreements, the supplier agrees to supply and the Company is obliged to purchase products corresponding to an agreed yearly purchase amount. The Company has recognized the liability for all products delivered as at March 31, 2007. The total amount committed under the agreements has been disclosed in Note 6, “Commitments and Contingencies.”

The Company periodically identifies any inventory that is no longer usable and writes it off.

Property, Plant and Equipment:

Property, plant and equipment, including equipment under capital leases, are stated at cost less accumulated depreciation. Equipment under capital lease is stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or the fair value of the leased assets at the inception of the lease.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation is computed using the straight-line method over estimated useful lives of three to 13 years for equipment and 20 years to 50 years for property and plant. Upon disposal, the assets and related accumulated depreciation are removed from IXYS’s accounts and the resulting gains or losses are reflected in the statements of operations. Repairs and maintenance costs are charged to expense. Depreciation of leasehold improvements is provided on the straight-line method over the shorter of the estimated useful life or the term of the lease.

As required by SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” IXYS evaluates the recoverability of the carrying amount of its property, plant and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Impairment is assessed when the forecasted undiscounted cash flows derived for the operation to which the assets relate are less than the carrying amount including associated intangible assets of the operation. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the assets. Judgment is used when applying these impairment rules to determine the timing of the impairment test, the undiscounted expected cash flows used to assess impairments and the fair value of an impaired asset. The dynamic economic environment in which IXYS operates and the resulting assumptions used to estimate future cash flows impact the outcome of these impairment tests.

On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed €10.0 million, or about $12 million, from IKB Deutsche Industriebank for a term of 15 years. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany. See Note 5, “Borrowing Arrangements” for more details.

Treasury Stock:

The Company accounts for treasury stock using the cost method.

Other Assets:

Other assets include marketable equity securities classified as available-for-sale and long term equity investment accounted under the equity method. In accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” unrealized gains and losses on these investments are included as a separate component of stockholders’ equity. Realized gains (calculated as proceeds less specifically identified costs) and losses and declines in value of these investments judged by management to be other than temporary, if any, are included in interest income and expense. The Company has a 45% equity interest in Powersem GmbH (“Powersem”), a semiconductor manufacturer based in Germany. This investment is accounted for using the equity method. The Company recognized income of $433,000 during fiscal 2007 and $510,000 in fiscal 2006. No income was recognized in fiscal 2005. See Note 4, “Balance Sheet Details” for further information.

An impairment loss is recorded when there has been a loss in value of the investment that is other than temporary. There was no impairment loss in fiscal 2007, 2006 or 2005.

Goodwill and Intangible Assets:

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired. IXYS values goodwill and intangible assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” The costs of acquired intangible assets are recorded at fair value at acquisition. Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, normally three to six years, and evaluated for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Goodwill and intangible assets with indefinite lives are carried at fair value and reviewed at least annually for impairment as of December 31, or more frequently if events and circumstances indicate that the asset might be

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

impaired, in accordance with SFAS 142. The Company has determined that it has two reporting units, one of which has a balance in goodwill. An impairment loss would be recognized to the extent that the carrying amount exceeds the fair value of the reporting unit. There are two steps in the determination. The first step compares the carrying amount of the net assets to the fair value of the reporting unit. The second step, if necessary, recognizes an impairment loss to the extent the carrying amount of the reporting unit’s net assets exceed the fair value of the reporting unit. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No. 141, “Business Combinations.” The residual fair value after this allocation is the implied fair value of the reporting unit’s goodwill. IXYS has not recorded an impairment of goodwill or intangible assets.

The Company reduced goodwill by $1.0 million in fiscal 2007. In fiscal 2006, the Company reduced goodwill and intangible assets by $14 million and $1.3 million, respectively. The reductions resulted from valuation allowance releases on deferred tax assets, accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” This is discussed in Note 11, “Income Taxes” below. These deferred tax assets were from loss carry forwards of acquired entities. At March 31, 2007 the Company had goodwill of $6.5 million and intangible assets of $390,000 included in other assets.

Foreign Exchange Contracts:

Although we have in the past entered into a limited number of foreign exchange forward contracts to help manage foreign currency exchange risks associated with certain of our operations, we do not generally hedge foreign currency exchange rates. IXYS does not purchase foreign exchange forward contracts for trading purposes. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on the results of operations. The contracts generally have maturity dates that do not exceed three months. The Company elected not to designate these foreign exchange forward contracts as accounting hedges and any changes in fair value are marked to market and recorded in the results of operations in other income. IXYS did not have any open foreign exchange forward contracts in the years ended March 31, 2007 and 2006.

Defined Benefit Plans:

IXYS maintains pension plans covering certain of its employees. For financial reporting purposes, net periodic pension costs are calculated based upon a number of actuarial assumptions, including a discount rate for plan obligations, assumed rate of return on pension plan assets and assumed rate of compensation increases for plan employees. All of these assumptions are based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact the future expense recognition and cash funding requirements of the Company’s pension plans. On March 31, 2007, IXYS adopted the provisions of SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Retirement Plans.” SFAS 158 required IXYS to recognize the funded status of its defined benefit pension and post-retirement benefit plans in its Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adoption of SFAS 158 did not have any impact on the consolidated financial statements. See Note 10, “Pension Plans” for the effects of the adoption of SFAS 158.

Fair Value of Financial Instruments:

Carrying amounts of certain of IXYS’s financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short maturities. Based on borrowing rates currently available to IXYS for loans with similar terms, the carrying value of notes payable to banks, loans payable and notes receivable from stockholders approximate fair value.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Advertising:

IXYS expenses advertising as the costs are incurred. Advertising expense for the years ended March 31, 2007, 2006 and 2005 was $628,000, $603,000 and $451,000, respectively. Advertising expense is included in selling, general and administrative expense.

Research and Development:

Research and development costs are charged to operations as incurred.

Income Taxes:

IXYS’s provision for income taxes is comprised of its current tax liability and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. In determining the amount of the valuation allowance, IXYS considers estimated future taxable income as well as feasible tax planning strategies in each taxing jurisdiction in which it operates. If IXYS determines that it will not realize all or a portion of its remaining deferred tax assets, it will increase its valuation allowance with a charge to income tax expense. Conversely, if IXYS determines that it will likely be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released as either a credit to goodwill, non-current intangible assets, or income tax expense. Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. In the event that actual results differ from these estimates or IXYS adjusts these estimates in future periods, IXYS may need to establish or increase an additional valuation allowance that could materially impact its financial position and results of operations. IXYS’s ability to utilize its deferred tax assets and the continuing need for a related valuation allowance are monitored on an ongoing basis.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “AJCA”). The AJCA includes a temporary incentive for U.S. corporations to repatriate accumulated income earned overseas. IXYS presently does not intend to repatriate any foreign income under the AJCA.

Other Income and Expense:

Other income and expense primarily consists of gains and losses on foreign currency transactions and interest income and expense, together with the Company’s share of income from investments accounted for on equity method.

Indemnification:

The Company does not provide product guarantees or warranties. On occasion, the Company provides limited indemnification to customers against intellectual property infringement claims related to the Company’s products. To date, the Company has not experienced significant activity or claims related to such indemnifications. The Company does provide in the normal course of business indemnification to its officers, directors and selected parties. The Company is unable to estimate any potential future liability, if any; therefore, no liability for these indemnification agreements has been recorded as of March 31, 2007, 2006 and 2005.

Legal Contingencies:

IXYS is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. SFAS No. 5, “Accounting for Contingencies,” requires that an estimated loss from a loss contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. IXYS evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Changes in these factors could materially impact the Company’s financial position, results of operations or cash flows. IXYS had reserves for litigation at March 31, 2007 of approximately $14.2 million, comprised of reserves for the litigation against International Rectifier Corporation of $6.8 million and against LoJack Corporation of $7.4 million. The Company expenses legal costs related to loss contingencies as incurred.

Net Income (Loss) per Share:

Basic earnings per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution from the exercise of options into common stock. The calculation of dilutive net income (loss) per share excludes potential shares if their effect is anti-dilutive; that is, when the exercise price of the option exceeds the market price. Potential shares consist of incremental common shares issuable upon the exercise of stock options.

Accumulated Other Comprehensive Income:

Accumulated other comprehensive income or loss represents foreign currency translation adjustments, unrealized gain or loss on equity investments classified as “available for sale” and minimum pension liability, net of tax. See Note 7, “ Accumulated Other Comprehensive Income.”

Concentration and Business Risks:

Dependence on Third Parties for Wafer Fabrication and Assembly:

Measured in dollars, IXYS manufactures approximately 62% of its wafers, an integral component of its products, in its facilities in Germany, the UK, Massachusetts and California. IXYS relies on third party suppliers to provide the remaining 38%. The principal external foundry is Samsung Electronics’ facility in Kiheung, South Korea. There can be no assurance that material disruptions in supply will not occur in the future. In such event, IXYS may have to identify and secure additional foundry capacity and may be unable to identify or secure sufficient foundry capacity to meet demand. Even if such capacity is available from another manufacturer, the qualification process could take six months or longer. If IXYS were unable to qualify alternative manufacturing sources for existing or new products in a timely manner or if such sources were unable to produce semiconductor devices with acceptable manufacturing yields and at acceptable prices, IXYS’s business, financial condition and results of operations would be materially and adversely affected.

Dependence on Suppliers:

IXYS purchases silicon substrates from a limited number of vendors, most of whom IXYS does not have long-term supply agreements with. Any of these suppliers could terminate their relationship with IXYS at any time. IXYS’s reliance on a limited number of suppliers involves several risks, including potential inability to obtain an adequate supply of silicon substrates and reduced control over the price, timely delivery, reliability and quality of the silicon substrates. There can be no assurance that problems will not occur in the future with suppliers.

Employees Covered by Collective Bargaining Arrangements:

Approximately 149 IXYS employees in the United Kingdom and 224 in Germany have their annual pay increases negotiated by a labor union.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Concentration of Credit Risk:

IXYS invests its excess cash primarily in short-term time deposit accounts with a major German bank and money market accounts with a U.S. bank. Additionally, IXYS invests in commercial paper with financial institutions that management believes to be creditworthy. These securities mature within ninety days or less and bear minimal credit risk. IXYS has not experienced any losses on such investments.

IXYS sells its products primarily to distributors and original equipment manufacturers. IXYS performs ongoing credit evaluations of its customers and generally does not require collateral. An allowance for potential credit losses is maintained by IXYS. See Note 13, “Segment and Geographic Information” for a discussion of revenues by geography.

In the years ended March 31, 2007 and 2006, no single end-user customer accounted for more than 10% of net revenues. In the year ended March 31, 2005, one customer represented 11.5% of net revenues. At March 31, 2007, one customer accounted for 10.6% of accounts receivable. At March 31, 2006 and 2005, no customer accounted for greater than 10% of accounts receivable.

Financial instruments that potentially subject IXYS to credit risk comprise principally cash and cash equivalents and trade accounts receivable. IXYS invests its excess cash in accordance with its investment policy that has been approved by the Board of Directors and is reviewed periodically by management to minimize credit risk. The policy authorizes the investment of excess cash in government securities, tax exempt municipal securities, Eurodollar notes and bonds, time deposits, certificates of deposit, commercial paper rated AA or better and other specific money market accounts and corporate instruments of similar liquidity and credit quality.

Stock-Based Compensation Plans:

The Company has employee equity incentive plans, which are described more fully in Note 3, “Employee Equity Incentive Plans.” Effective April 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share based payment.” SFAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and shares expected to vest. The Company previously accounted for awards granted under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and provided the required pro forma disclosures prescribed by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of IXYS’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. IXYS’s policy is to grant options with an exercise price equal to the quoted market price of IXYS’s stock on the grant date. Accordingly, no compensation has been recognized for its stock option plans. IXYS provides additional pro forma disclosures as required under SFAS 123.

The fair value of issuances under the Company’s Employee Stock Purchase Plan is estimated on the issuance date by applying the principles of Financial Accounting Standards Board, or FASB, Technical Bulletin 97-1 (“FTB 97-1”), “Accounting under Statement 123 for Certain Employee Stock Purchase Plan with a Look Back Option,” and using the Black-Scholes options pricing model.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recent Accounting Developments

In June 2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertain Tax Positions” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is still assessing the impacts of adoption of FIN 48. Based on the preliminary analysis, management believes that adoption will result in recording a decrease to retained earnings between $1.9 million and $3.2 million in the first quarter of fiscal 2008. However, the final analysis will be completed in the first quarter of fiscal 2008.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The Statement is effective for the Company beginning in the first quarter of fiscal 2009. The Company is currently evaluating the impact of SFAS 157 to its financial position and results of operations.

In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for the Company beginning in the first quarter of fiscal year 2008, although earlier adoption is permitted. The adoption of SFAS 159 is not likely to have a material impact on the consolidated financial position, results of operations or cash flows.

Reclassifications

Certain reclassifications have been made to previously reported amounts to conform to current year presentation. Reclassifications have been made in the cash flow statement between cash flows from investing activities and cash flows from financing activities in fiscal 2006 pertaining to certain capital lease related amounts. The reclassifications had no impact on results from operations, financial position, shareholders equity, or cash flows from operating activities previously reported.


3.	Employee Equity Incentive Plans

Stock Purchase and Stock Option Plans:

Stock Options

Stock options may be granted under the 1999 Equity Incentive Plan and the 1999 Non-Employee Directors’ Equity Incentive Plan (the “Plans”) for not less than 85% of fair market value at the time of grant. The options, once granted, expire ten years from the date of grant. Options granted to employees under the 1999 Equity Incentive Plan typically vest over four years. The initial option grants under the 1999 Non-Employee Directors’ Equity Incentive Plan typically vest over four years and subsequent annual grants vest over one year. The Board of Directors has the full power to determine the provisions of each option issued under the Plans. No options have been granted below fair market value. During fiscal 2007, the Company also began to grant net exercise options. These options generally vest over a period of four years. In a net exercise option, the number of shares obtained by exercising the stock option is net of the number of shares subject to the option that the Company cancels to cover the aggregate exercise price.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Since inception, the cumulative amount authorized for the 1999 Equity Incentive Plan was approximately 10.6 million shares. The 1999 Equity Incentive Plan has an evergreen feature that adds up to 1,000,000 shares to the total shares authorized each year at the discretion of the board. The 1999 Non-Employee Directors’ Equity Incentive Plan had a total of 500,000 shares authorized at its inception date.

Employee Stock Purchase Plan

In May 1999, IXYS approved the 1999 Employee Stock Purchase Plan (“Purchase Plan”) and reserved 500,000 shares of common stock for issuance under the Purchase Plan. Under the Purchase Plan, substantially all employees may purchase the Company’s common stock at a price equal to 85% of the lower of the fair market value at the beginning or the end of each specified six-month offering period. Stock purchases are limited to 15% of an employee’s eligible compensation. During the year ended March 31, 2007, there were approximately 79,000 shares purchased under the Purchase Plan, leaving about 72,000 shares available for purchase under the plan in the future.

Restricted Stock Units

On May 12, 2006, the Board of Directors of the Company amended the Company’s 1999 Equity Incentive Plan to provide for the grant of Restricted Stock Unit Awards (“RSUs”). Pursuant to an award, the Company will, in the future, deliver shares of the Company’s common stock if certain requirements, including continued performance of services, are met. RSUs granted to employees typically vest over four years. When vested, each RSU will entitle the holder of the RSU award to one share of the Company’s common stock.

Stock Bonuses

Under the Plans, IXYS may also award shares of common stock as stock bonuses.

Fair Value of Stock Compensation:

Effective April 1, 2006, the Company adopted the provisions of SFAS No. 123(R). SFAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award. The Company previously accounted for awards granted under its equity incentive plans under the intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, and provided the required pro forma disclosures prescribed by SFAS 123, as amended. Under APB No. 25, compensation cost is measured as the excess, if any, of the quoted market price of IXYS’s stock at the date of grant over the exercise price of the option granted. Compensation cost for stock options, if any, is recognized ratably over the vesting period. IXYS’s policy is to grant options with an exercise price equal to the quoted market price of IXYS’s stock on the grant date. Accordingly, no compensation has been recognized for its stock option plans. IXYS provides additional pro forma disclosures as required under SFAS 123.

Under the modified prospective method of adoption for SFAS 123(R), the compensation cost recognized by the Company beginning in fiscal 2007 includes compensation cost for all equity incentive awards granted prior to, but not yet vested as of April 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and compensation cost for all equity incentive awards granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). The Company uses the straight-line attribution method to recognize share-based compensation costs over the service period of the award. During fiscal 2006, IXYS accelerated the vesting of the right to purchase 920,250 shares of its common stock pursuant to previously granted stock options. The accelerated options were at an average exercise price of $12.99 and the exercise prices were excess of the closing price on the date of the acceleration. The vesting was accelerated to avoid future accounting charges under SFAS No. 123R.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of issuances under the Company’s Employee Stock Purchase Plan is estimated on the issuance date by applying the principles of FASB Technical Bulletin 97-1 (“FTB 97-1”), “Accounting under Statement 123 for Certain Employee Stock Purchase Plan with a Look Back Option,” and using the Black-Scholes options pricing model, consistent with the requirements of SFAS 123(R).

Share-based compensation recognized in the fiscal year ended March 31, 2007 as a result of the adoption of SFAS 123(R) as well as pro forma disclosures according to the original provisions of SFAS 123 for periods prior to the adoption of SFAS 123(R) use the Black-Scholes option pricing model for estimating fair value of options granted under the Plans and rights to acquire stock under the Employee Stock Purchase Plan.

The following table summarizes the effects of share-based compensation recognized on the Company’s consolidated statement of income resulting from the application of SFAS 123(R) to options granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s Employee Stock Purchase Plan (in thousands except per share amounts):

Income Statement Classifications


	Year Ended March 31,
	2007			2006		2005

Selling, general and administrative expenses	$	2,009		$	—	$	—

Share-based compensation effect on income before taxes		2,009			—		—
Benefit from income taxes		312			—		—

Net share-based compensation effects on net income	$	1,697		$	—	$	—

Share-based compensation effect on net income per share — basic	$	0.05		$	—	$	—

Share-based compensation effect on net income per share — diluted	$	0.05		$	—	$	—

Share-based compensation effect on cash flow from operating activities	$	(554	)	$	—	$	—

Share-based compensation effect on cash flow from financing activities	$	554		$	—	$	—

As of March 31, 2007, there were $1.9 million of total unrecognized compensation costs related to stock options granted under the Plans. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.2 years. Total tax benefit realized during the year ended March 31, 2007 on stock options was $554,000.

Pro forma information required under SFAS 123 for periods prior to fiscal 2007, as if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Plans and rights to acquire stock granted under the Purchase Plan, was as follows (in thousands except per share amounts):


	Year Ended March 31,
	2006			2005

Net (loss) income, as reported	$	(6,106	)	$	16,242
Less: Total stock-based compensation determined under fair value based methods for all awards to employees, net of tax		(4,235	)		(1,870	)

Pro forma net (loss) income	$	(10,341	)	$	14,372

Reported net (loss) income per share — basic	$	(0.18	)	$	0.49

Pro forma net (loss) income per share — basic	$	(0.31	)	$	0.43

Reported net (loss) income per share — diluted	$	(0.18	)	$	0.46

Pro forma net (loss) income per share — diluted	$	(0.31	)	$	0.41

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The weighted average estimated values of employee stock option grants and rights granted under the Employee Stock Purchase Plan, as well as the weighted average assumptions that were used in calculating such values during fiscal 2007, 2006 and 2005, were based on estimates at the date of grant as follows:


	Stock Options									Employee Stock Purchase Plan
	Year Ended March 31,									Year Ended March 31,
	2007			2006(1)			2005(1)			2007			2006(1)			2005(1)

Weighted average estimated per share fair value of grant	$	4.21		$	6.68		$	4.15		$	4.11		$	3.59		$	2.66
Risk-free interest rate		4.9	%		3.9	%		3.3	%		4.5	%		2.4	%		1.3	%
Expected term (in years)		3.7			4.0			4.0			0.5			0.5			0.5
Volatility		54.0	%		63.0	%		64.0	%		53.0	%		57.0	%		57.0	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%


(1)		Assumptions were used in the calculation of fair value according to the original provisions of SFAS 123.

The Company estimates the expected term of options granted based on the historical average period over which the options are exercised by employees. The Company estimates the volatility of its common stock on historical volatility measures. The Company bases the risk-free interest rate that it uses in the option valuation model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grants and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The Company recognizes the estimated compensation cost of restricted stock over the vesting term. The estimated compensation cost is based on the fair value of IXYS’s common stock on the date of grant. 158,000 RSUs were granted in fiscal 2007. The weighted average fair value of the restricted stock units granted in fiscal 2007 was $9.48.

The Company recognizes the compensation cost relating to stock bonuses on the date of grant based on the fair value of IXYS’s common stock on the date of grant, as such stock bonuses are vested immediately. The Company granted 10,000 shares with weighted average fair value of $9.34 during fiscal 2007.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock compensation activity under the Company’s equity incentive plans for fiscal 2007, 2006 and 2005 is summarized below:


				Options Outstanding							Weighted Average
	Shares Available			Number of			Exercise Price		Intrinsic		Exercise Price
	for Grant			Shares			per Share(1)		Value(2)(3)		per Share
									(000)

Balances, March 31, 2004		3,169,118			5,310,564						$	6.29
New shares authorized		1,000,000
Options granted		(453,000	)		453,000		$	6.65-$9.15			$	8.14
Options exercised					(480,751	)	$	1.69-$7.38			$	3.23
Options cancelled		61,640			(61,640	)	$	4.64-$31.54			$	9.09
Options expired		20,100			(24,098	)	$	2.16-$19.00			$	10.25

Balances, March 31, 2005		3,797,858			5,197,075						$	6.68
New shares authorized		1,000,000
Options granted		(804,000	)		804,000		$	10.22 - $15.81			$	13.33
Options exercised					(1,003,525	)	$	1.69 - $13.73			$	4.58
Stock grants		(10,000	)		—			—
Options cancelled		74,424			(74,424	)	$	1.69 - $36.24			$	7.06
Options expired		78,634			(78,634	)	$	3.66 - $32.30			$	14.50

Balances, March 31, 2006		4,136,916			4,844,492						$	8.09
New shares authorized		1,000,000
Options granted		(30,000	)		30,000		$	8.98 - $9.73			$	9.36
Options exercised					(250,976	)	$	1.83 - $8.61	$	925	$	6.19
Stock grants		(10,000	)		—			—
Options cancelled		48,850			(48,850	)	$	6.65 - $9.73			$	7.65
Options expired		20,857			(118,641	)	$	2.16 - $21.36			$	5.62

Balances, March 31, 2007		5,166,623			4,456,025				$	14,528	$	8.27
Restricted Stock Units
Balances, March 31, 2006		—			—					—
Granted		(158,000	)		158,000		$	9.48	$	1,498
Vested					(14,148	)	$	8.94	$	132
Forfeited		4,500			(4,500	)	$	9.23

Unvested					139,352

Balances, March 31, 2007		5,013,123			4,595,377


(1)		For restricted stock units, represents the weighted average fair value on the date of grant.

(2)		Except for options exercised, these amounts represent the difference between the exercise price and $10.23, the closing price of IXYS stock on March 30, 2007 as reported on the Nasdaq Stock Market, for all in-the-money, outstanding and exercisable

(3)		Represents value of IXYS stock on the date the restricted stock unit vests.

In November 1995, IXYS sold 6,750,395 shares of common stock to certain members of IXYS’s management. The shares were purchased through recourse promissory notes at a purchase price of $0.11 per share. Interest was due on the notes at a rate of 5.79% per annum through September 15, 2000 and 6.25% per annum after that date, with the balance outstanding due in full September 2005. In September 2005, these notes were paid in full.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The recourse promissory note issued in 2001 by a director in connection with his purchase of 8,250 shares of common stock was paid in full during fiscal 2007.

The following table summarizes information about stock options outstanding at March 31, 2007:


Options Outstanding							Options Exercisable
	Number of				Weighted		Number of		Weighted
Exercise Price	Shares		Weighted Average		Average Exercise		Shares		Average Exercise
per Share	Outstanding		Contractual Life		Price per Share		Exercisable		Price per Share

$ 1.69- 2.34		707,976		2.8	$	2.22		707,976	$	2.22
$ 3.46- 4.88		713,162		3.5	$	3.91		713,162	$	3.91
$ 5.23- 7.79		1,135,425		5.4	$	7.11		1,072,975	$	7.13
$ 8.01- 11.70		990,709		7.0	$	9.52		668,784	$	9.50
$12.21- 17.30		709,846		6.8	$	14.28		709,846	$	14.28
$18.44- 21.36		104,517		2.8	$	19.16		104,517	$	19.16
$28.49- 36.24		94,390		2.7	$	30.40		94,390	$	30.40

$ 1.69- 36.24		4,456,025		5.1	$	8.27		4,071,650	$	8.20

Of the 4,456,025 options outstanding, 4,071,650 were exercisable on March 31, 2007 at a weighted average exercise price of $8.20, with an intrinsic value of $14.1 million. The weighted average remaining contractual life of options outstanding and options exercisable at March 31, 2007 is 5.1 years and 4.9 years, respectively. Fair value of options that vested during the year ended March 31, 2007 was $1.9 million.


4.	Balance Sheet Details:

Allowances Movement:


	Balance at										Balance at
	Beginning							Translation			End of
	of Year		Additions		Deductions			Adjustments			Year
	(In thousands)

Allowances for accounts receivable and for doubtful accounts
Year ended March 31, 2007	$	2,609	$	11,745	$	(11,577	)	$	70		$	2,847
Year ended March 31, 2006	$	2,629	$	5,578	$	(5,536	)	$	(62	)	$	2,609
Year ended March 31, 2005	$	2,654	$	4,994	$	(5,057	)	$	38		$	2,629

Inventories:

Inventories consist of the following (in thousands):


	March 31,
	2007		2006

Raw materials	$	23,144	$	16,648
Work in process		43,477		28,583
Finished goods		19,344		15,126

	$	85,965	$	60,357

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Plant and Equipment:

Property, plant and equipment consists of the following (in thousands):


	March 31,
	2007			2006

Property and plant (useful life of 20 to 50 years)	$	22,272		$	21,520
Equipment owned (useful life of 3 to 13 years)		68,007			57,182
Equipment capital leases (useful life of 3 to 13 years)		26,004			16,960
Leasehold improvements (useful life of up to 5 years)		1,003			1,003

		117,286			96,665
Accumulated depreciation — plant, equipment owned, and leasehold improvements		(52,753	)		(45,758	)
Accumulated amortization — Equipment capital leases		(15,792	)		(10,858	)

	$	48,741		$	40,049

Depreciation and amortization expense for fiscal years ended March 31, 2007, 2006 and 2005 amounted to $10.5 million, $8.5 million, and $10.6 million, respectively.

IXYS leases certain equipment under capital lease arrangements expiring through fiscal 2011 at interest rates of 5.4% to 8.3%.

Other Assets:

Other assets consist of the following (in thousands):


	March 31,
	2007		2006

“Available for sale” investment securities	$	2,913	$	2,423
Long term equity investment		1,680		1,107
Intangible assets, net of accumulated amortization of $6.5 million in 2007 and $5.7 million in 2006		390		782
Other		336		787

	$	5,319	$	5,099

Available for sale investment securities have been stated at their fair value as at March 31, 2007 and include an unrealized gain of $643,000, $326,000 and $0 at March 31, 2007, 2006 and 2005, respectively. During fiscal 2007, the Company recognized a gain of $191,000 on the sale of available-for-sale investment securities, of which $64,000 was included as unrealized gains in accumulated other comprehensive income as of March 31, 2006. Amortization of intangible assets was approximately $517,000 and $959,000 in fiscal 2007 and 2006, respectively. The amortization of intangible assets is expected to be $336,000 and $54,000 in fiscal 2008 and 2009, respectively.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accrued Expenses and Other Liabilities:

Accrued expenses and other liabilities consist of the following (in thousands):


	March 31,
	2007		2006

Uninvoiced goods and services	$	6,964	$	5,606
Compensation and vacation		5,782		5,433
Income taxes		3,884		10,970
Commission, royalties, deferred revenue and other		2,451		2,880

	$	19,081	$	24,889


5.	Borrowing Arrangements:

On June 10, 2005, IXYS Semiconductor GmbH, a German subsidiary of IXYS, borrowed €10.0 million, or about $12 million, from IKB Deutsche Industriebank for a term of 15 years.

The interest rate on the loan is determined by adding the then effective three month Euribor rate and a margin. The margin can range from 70 basis points to 125 basis points, depending on the calculation of a ratio of indebtedness to cash flow for the German subsidiary. During the first five years of the loan, if the Euribor rate exceeds 3.75%, then the Euribor rate for the purposes of the loan shall be 4.1%, and, if the Euribor rate falls below 2%, then the Euribor rate for the purposes of the loan shall be 3%. Thereafter, the interest rate is recomputed annually. The interest rate at March 31, 2007 was 4.8%.

Each fiscal quarter beginning September 2005, during the first five years of the loan, a principal payment of €167,000, or about $223,000, and a payment of accrued interest will be required. Thereafter, the amount of the payment will be recomputed.

Financial covenants for a ratio of indebtedness to cash flow, a ratio of equity to total assets and a minimum stockholders’ equity for the German subsidiary must be satisfied for the loan to remain in good standing. The loan may be prepaid in whole or in part at the end of a fiscal quarter without penalty. At March 31, 2007, the Company had complied with the financial covenants. The loan is partially collateralized by a security interest in the facility owned by IXYS in Lampertheim, Germany.


6.	Commitments and Contingencies:

Commitments:

IXYS leases certain equipment under capital lease arrangements expiring through fiscal 2011 at interest rates of 5.4% to 8.3%.

IXYS rents certain of its facilities under operating leases expiring through fiscal 2022.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future minimum lease payments under capital, operating leases, and commitments for inventory purchase are (in thousands):


	Capital		Operating		Inventory Purchase
Fiscal Year Ending March 31,	Leases		Leases		Obligation

2008	$	4,195	$	1,606	$	27,082
2009		3,552		1,316		5,500
2010		2,381		837		3,000
2011		1,178		844		3,000
2012		—		764		3,000
Thereafter		—		6,961		2,250

Total minimum payments		11,306	$	12,328	$	43,832

Less: Interest		960

		10,346
Less: current portion		3,686

	$	6,660

Rent expense for fiscal years ended March 31, 2007, 2006 and 2005 amounted to $1.3 million, $1.5 million and $2.8 million, respectively.

As of March 31, 2007 and 2006, IXYS had cash deposits with financial institutions of $169,000 and $313,000, respectively, which were restricted as to use and represent compensating balances for current or future discounted acceptances and letters of credit. These balances are restricted for less than one year and are included in restricted cash on the Company’s balance sheets.

IXYS Corporation guarantees, for certain events of default, a $5.0 million line of credit issued by a German bank to IXYS Semiconductor GmbH to support a letter of credit facility. At March 31, 2007, there were approximately $1.7 million of open letters of credit to support inventory purchases. Westcode Semiconductor Limited (Westcode), a subsidiary, had a Letter of Credit facility from a British bank for £328,000 or approximately $644,000, as of March 31, 2007. On April 2, 2007 the bank also issued a guarantee on behalf of the subsidiary for £248,000, or approximately $487,000, in connection with a product supply contract.

The Company has made a claim against its insurance company for business interruption following an accident at its fabrication facility at Beverly, Massachusetts, in fiscal 2005. The Company received $936,000 in connection with the claim in fiscal 2007. The Company recognized $510,000 of the amount received, as it was not in dispute. The claim is expected to be settled for a total of $1.6 million. The Company does not record contingent gains in its financial statements until such time as all claim settlement formalities have been completed and final payment has been received or is assured of being collected.

Legal Proceedings:

IXYS is currently involved in a variety of legal matters that arise in the normal course of business. Were an unfavorable ruling to occur, there could be a material adverse impact on its financial condition, results of operations or cash flows.

International Rectifier

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

against IXYS contended that IXYS’s alleged infringement of International Rectifier’s patents had been and continued to be willful and deliberate. Subsequently, the U.S. District Court decided that certain of IXYS’s power MOSFETs and IGBTs infringed certain claims of each of three International Rectifier U.S. patents.

In 2002, the U.S. District Court entered a permanent injunction barring IXYS from making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by the subject patents and ruled that International Rectifier should be awarded damages of $9.1 million for IXYS’s alleged infringement of International Rectifier’s patents. In addition, the U.S. District Court ruled that IXYS had been guilty of willful infringement. Subsequently, the U.S. District Court increased the damages to a total of $27.2 million, plus attorney fees.

As to the other group of claims, the jury found that IXYS did not infringe the 725 and 767 patents, but did infringe the 699 patent by the doctrine of equivalents. If upheld on appeal, this finding would have a material financial impact on IXYS. However, the jury also made a specific finding that IXYS’s devices do not infringe the 725 and 767 patents because they include an “annular source region,” which IXYS believes is inconsistent with the conclusion that the 699 patent is infringed. The jury’s verdict awarded International Rectifier $6.2 million as damages for the infringement plus 6.5% of revenues from infringing products, by implication, after September 30, 2005. The U.S. District Court entered a judgment reflecting the jury’s verdict and also issued a permanent injunction barring IXYS from selling or distributing the infringing products. Thereafter, IXYS appealed the judgment and the injunction to the Federal Circuit Court. Without addressing the substance of IXYS’s appeal, on July 14, 2006, the Federal Circuit Court vacated the judgment and the injunction and remanded the matter to U.S. District Court for “further proceedings as appropriate” in view of the United States Supreme Court’s recent decision in eBay, Inc v. MercExchange, LLC. In September 2006, The U.S. District Court again entered another judgment reflecting the jury’s determination of damages and issued a permanent injunction barring IXYS from selling or distributing the infringing products. IXYS is appealing the judgment against it and the injunction barring IXYS from selling or distributing products. Counsel to IXYS inadvertently did not file the requisite notice of appeal following the entry of judgment within the required time period. However, because IXYS’s counsel has taken timely corrective measures, IXYS believes that it is unlikely that IXYS will be precluded from pursuing its appeal. In January 2007, the Federal Circuit Court declined to issue a stay of the judgment and injunction. The judgment therefore became payable and the injunction enforceable. IXYS recognized a litigation provision of $6.8 million during the year ended March 31, 2007 in connection with this matter. There is no assurance that this amount is sufficient for any actual losses that may be incurred as a result of this litigation.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

LoJack

On April 10, 2003, LoJack Corporation (“LoJack”) filed a suit against Clare, Inc., a subsidiary of IXYS, in the Superior Court of Norfolk County, Massachusetts claiming breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, failure to perform services and violation of a Massachusetts statute prohibiting unfair and deceptive acts and practices, all purportedly resulting from Clare’s alleged breach of a contract to develop custom integrated circuits and a module assembly. The trial commenced on January 30, 2006. On February 8, 2006, the jury awarded LoJack $36.7 million in damages. On July 20, 2006, the Superior Court reduced LoJack’s damages to $4 million.

IXYS released $36.2 million from the litigation provision, net of interest accrual, during fiscal 2007 to reflect a net accrual of $7.4 million at that date, which amount includes interest and attorneys’ fees in addition to the reduced damage award. An adverse outcome would be materially adverse to IXYS’s financial condition, results of operations and cash flows.


7.	Accumulated Other Comprehensive Income:

The components of accumulated other comprehensive income, net of tax:


	Year Ended March 31,
	2007			2006
	(In thousands)

Accumulated net unrealized gain on available-for-sale investments securities, net of taxes $447 in 2007 and $0 in 2006	$	644		$	327
Accumulated minimum pension liability, net of taxes of $1,521 in 2007 and $646 in 2006		(2,747	)		(1,159	)
Accumulated foreign currency translation adjustments		10,219			4,467

Total accumulated other comprehensive income	$	8,116		$	3,635


8.	Employee Savings and Retirement Plan:

IXYS has a 401(k) plan, known as the “IXYS Corporation and Subsidiary Employee Savings and Retirement Plan.” Eligibility to participate in the plan is subject to certain minimum service requirements. Employees may voluntarily contribute up to 20% of yearly compensation and IXYS may make matching contributions as determined by the Board of Directors in a resolution on or before the end of the fiscal year. Employees are 100% vested immediately in any contributions by IXYS. For the years ended March 31, 2007, 2006 and 2005, IXYS contributed $519,000, $396,000 and $407,000, respectively.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Westcode also started a defined contribution plan known as “Westcode Semiconductor Group Personal Pension” in 2007. The plan is subject to minimum service requirements. Employees contribute from 2.5% to 4.5% of the pensionable salary. Westcode contributes between 5% to 7% depending upon the contribution by the employee. Additionally, Westcode pays the annual management charges for the plan. Employees are 100% vested immediately in any contributions by Westcode. Westcode contributed $194,000 in 2007.


9.	Related Party Transactions:

IXYS owns 45% of the outstanding equity of Powersem, a module manufacturer based in Germany. The investment is accounted for using the equity method. In fiscal 2007, 2006 and 2005, IXYS recorded revenues of $2.4 million, $1.5 million and $1.5 million, respectively, from sales of products to Powersem for use as components in their products. In fiscal 2007, 2006 and 2005, IXYS purchased $2.8 million, $3.1 million and $3.2 million, respectively, from Powersem. At March 31, 2007, 2006 and 2005, the accounts receivable balance from IXYS’s sales to Powersem was $305,000, $143,000 and $117,000, respectively. The accounts payable balance of IXYS to Powersem, as of March 31, 2007, 2006 and 2005, was $261,000, $129,000 and $133,000, respectively. IXYS loaned Powersem $30,000, interest free, in fiscal 2003. The loan was repaid in full on April 12, 2006.

ABB, Ltd. was a principal stockholder of IXYS until December 2004. In fiscal 2005, IXYS generated revenues of $3.6 million from sales of products to ABB and ABB affiliates for use as components in their products. At March 31, 2005, the accounts receivable balance from these sales was $535,000. ABB was not a related party during fiscal 2007 or 2006.

Omni Microelectronics, a sales representative company majority owned by S. Joon Lee, was paid sales commissions by Samsung Electronics on $39.6 million, $37.1 million and $39.8 million billed to the Company by Samsung Electronics during fiscal 2007, 2006 and 2005, respectively, for wafer fabrication services. Mr. Lee is a director of the Company.


10.	Pension Plans:

IXYS maintains two defined benefit pension plans: one for United Kingdom employees and one for German employees. These plans cover most of the employees in the United Kingdom and Germany. Benefits are based on years of service and the employees’ compensation. The Company deposits funds for these plans, consistent with the requirements of local law, with investment management companies, insurance companies, trustees, and/or accrues for the unfunded portion of the obligations. The measurement date for the projected benefit obligations and the plan assets was March 31, 2007. Both the plans have been curtailed and no gains on curtailment were recorded as they did not exceed the unrecognized losses.

On March 31, 2007, IXYS adopted the provisions of SFAS 158. SFAS 158 required IXYS to recognize the funded status of its defined benefit pension plans in the Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation for pension plans. The amount recognized in the statement of financial position as of the end of the fiscal year, including amounts required to recognize any additional minimum pension liability, shall be adjusted to recognize gain or losses that have not yet been included in net periodic pension cost as of the end of fiscal year as a component of ending balance of accumulated other comprehensive income, net of tax.

These amounts will be recognized in net periodic benefit cost as they are amortized. IXYS will recognize future changes to the funded status of these plans in the year the change occurs, through other comprehensive income. In accordance with SFAS 158, the consolidated financial statements for prior periods have not been restated to reflect, and, do not include, the impact of SFAS 158. Application of SFAS 158 did not have any impact on the consolidated financial position, primarily due to curtailment of the pension plans.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

SFAS 158 also requires plan assets and obligations to be measured as of the employer’s balance sheet date. This provision is effective for fiscal years beginning after December 15, 2008. IXYS already measures the plan assets and obligations as of the fiscal year-end balance sheet date. As a result, this provision will not have an affect on the consolidated financial statements.

Net Period Pension Cost:

The net periodic pension expense includes the following components:


	Year Ended March 31,
	2007			2006			2005
	(In thousands)

Service cost	$	824		$	837		$	878
Interest cost		1,882			1,667			1,713
Expected return on plan assets		(1,606	)		(1,189	)		(1,166	)
Recognized actuarial loss		70			54			118

Net periodic pension expense	$	1,170		$	1,369		$	1,543

Funded Status:


	Year Ended March 31,
	2007			2006
	(In thousands)

Change in benefit obligation
Projected benefit obligation at the beginning of the year	$	36,944		$	33,774
Service cost		824			837
Interest cost		1,882			1,667
Plan participants contribution		180			173
Actuarial (gain) loss		(1,037	)		3,453
Benefits paid		(1,834	)		(835	)
Foreign currency adjustment		4,154			(2,125	)

Projected benefit obligation at the end of the year	$	41,113		$	36,944


	Year Ended March 31,
	2007			2006
	(In thousands)

Change in plan assets
Fair value of plan assets at the beginning of the year	$	21,743		$	18,035
Actual return on plan assets		136			4,134
Employer contribution		1,034			1,187
Plan participants contribution		180			173
Benefits paid from assets		(1,468	)		(440	)
Foreign currency adjustment		2,613			(1,346	)

Fair value of plan assets at the end of the year	$	24,238		$	21,743

The amount of accumulated other comprehensive income expected to be recognized in net periodic pension cost in fiscal 2008 includes amortization of actuarial loss of $60,000.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the funding status as of:


	Year Ended March 31,
	2007			2006
	(In thousands)

Funded status of plan
Plan obligations in excess of plan assets	$	(16,875	)	$	(15,201	)
Unrecognized actuarial loss		4,266			3,430

Net pension liability		(12,609	)		(11,771	)
Additional minimum pension liability		(4,266	)		(1,805	)

Pension liability recognized on the balance sheet	$	(16,875	)	$	(13,576	)

Other comprehensive income	$	4,266		$	1,805
Less: Deferred taxes		(1,519	)		(646	)

Amount recognized in other comprehensive income	$	2,747		$	1,159

Weighted average actuarial assumptions used to determine benefit obligations for the plans were as follows:


	Year Ended March 31,
	2007			2006

Discount rate		4.7-5.5	%		4.25-5.0	%
Expected long-term rate of return on assets		4.2-7.0	%		3.9-6.8	%
Salary scale		1.5	%		1.0-4.0	%

Approximately 60% of the accrued pension liability relates to the German plan and 40% to the United Kingdom plan. The total accumulated benefit obligation at March 31, 2007 and March 31, 2006 was approximately $41.1 million and $35.3 million, respectively.

The investment policies and strategies for the assets of the plans are determined by the respective plan’s trustees in consultation with independent investment consultants and the employer. The Company’s practice is to fund these plans in amounts at least sufficient to meet the minimum requirements of local laws and regulations. The trustees are aware that the nature of the liabilities of the plans will evolve as the age profile and life expectancy of the membership changes. These changing liability profiles lead to consultations about the appropriate balance of investment assets to be used by the plans (equity, debt, other), as well as timescales within which required adjustments should be implemented. The plan assets in the United Kingdom are held in pooled investment funds operated by Fidelity Investments. The plan assets in Germany are held by a separate legal entity. The plan assets do not include securities of the Company. There was an intermediate objective to increase the debt proportion of the assets to approximately 25% of assets by 2007 by investing new contributions in debt and by reducing equity investments. This objective has not been achieved due to the relative investment returns but the bond proportion has increased by 2%.

The long-term expected rate of return is a weighted average of the returns expected for the underlying broad asset classes. The expected returns for each asset class take into account the market conditions on March 31, 2007 and past performance of the asset classes generally.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

IXYS expects to make contributions to the plans of approximately $801,000 in the fiscal year ending March 31, 2008. This contribution is primarily contractual. The allocation of the assets of the plans at the measurement dates was approximately:


	Year Ended March 31,
	2007			2006

Equity securities		81	%		82	%
Debt securities		17	%		15	%
Other		2	%		3	%

IXYS expects to pay benefits in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter of approximately (in thousands):


	Benefit
	Payments

Year ended March 31, 2008	$	1,097
Year ended March 31, 2009		1,142
Year ended March 31, 2010		1,169
Year ended March 31, 2011		1,201
Year ended March 31, 2012		1,287
Five fiscal years ended March 31, 2017		7,935

Total benefit payments for the ten fiscal years ended March 31, 2017	$	13,831


11.	Income Taxes:

Income (loss) before income tax provision (benefit) consists of the following (in thousands):


	Year Ended March 31,
	2007		2006			2005

Domestic	$	42,558	$	(29,608	)	$	14,829
International	$	5,681	$	16,591		$	10,952

	$	48,239	$	(13,017	)	$	25,781

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

IXYS’s provision for (benefit from) income taxes consists of the following (in thousands):


	Year Ended March 31,
	2007			2006			2005

Current:
Federal	$	(834	)	$	2,995		$	(1,121	)
State	$	325		$	47		$	429
Foreign	$	2,282		$	4,473		$	2,346

	$	1,773		$	7,515		$	1,654
Deferred:
Federal	$	14,949		$	(13,018	)	$	4,735
State	$	1,177		$	(1,168	)	$	(36	)
Foreign	$	121		$	(240	)	$	3,186

	$	16,247		$	(14,426	)	$	7,885

Total income tax provision (benefit)	$	18,020		$	(6,911	)	$	9,539

The reconciliation of IXYS’s effective tax rate differs to the U.S. statutory federal income tax rate is as follows:


	Year Ended March 31,
	2007			2006			2005

Statutory federal income tax (benefit) rate		35	%		(35	)%		35	%
State taxes, net of federal tax benefit		3			(9	)		1
Benefit of lower tax jurisdictions		1			5			(3	)
Swiss benefit		(1	)		(6	)		—
ETI & Section 199 deduction		—			(2	)		—
Credits		(1	)		(4	)		(3	)
Valuation allowance		—			(3	)		12
Permanent items		1			(8	)		—
Tax reserves		(2	)		20			—
True up for prior periods		1			(10	)		—
Share-based compensation		1			—			—
Other		(1	)		(1	)		(5	)

Effective tax (benefit) rate		37	%		(53	)%		37	%

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The significant components of net deferred income tax assets are as follows (in thousands):


	March 31,
	2007			2006

Deferred tax assets:
Reserves	$	5,309		$	6,012
Other liabilities and accruals		9,036			19,279

Total short-term deferred tax assets		14,345			25,291
Depreciable assets		648			506
Net operating loss carryforward		19,488			24,390
Share-based compensation		436			—
Credits carryforward		1,918			2,441
Intangibles arising from acquisitions		(1,443	)		(1,644	)

Net deferred tax asset	$	35,392		$	50,984
Less: Valuation allowance		(8,220	)		(9,383	)

	$	27,172		$	41,601

IXYS accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS 109 requires deferred tax assets and liabilities to be recognized for temporary differences between the tax basis and financial reporting basis of assets and liabilities, computed at the expected tax rates for the periods in which the assets or liabilities will be realized, as well as for the expected tax benefit of net operating loss and tax credit carryforwards. Significant management judgment is required in determining the Company’s provision for income taxes, its deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. The Company’s management evaluates the recoverability of these net deferred tax assets in accordance with SFAS 109. As IXYS generates future taxable income or concludes that sufficient taxable income is reasonably assured, based on profitable operations in the appropriate tax jurisdictions where these tax attributes may be applied, some portion or all of the valuation allowance will be reversed and a corresponding reduction in goodwill, non-current intangible assets, or income tax expense will be reported in such period. The Company’s ability to utilize its deferred tax assets and the continuing need for a related valuation allowance are being monitored on an ongoing basis. During the fourth quarter, IXYS recorded certain tax adjustments on valuation allowance, tax contingency reserves, and other temporary items. The impacts of these adjustments are discussed further in this note. At March 31, 2007, IXYS assessed its ability to utilize net operating losses based on positive and negative evidence and correspondingly released $1.2 million of valuation allowance for net operating losses that the Company estimates to be utilizable.

At March 31, 2007, IXYS had federal net operating loss carryforwards of approximately $45.9 million, of which $45.6 million are subject to the limitations under section 382 of the U.S. tax code resulting from change in ownership. IXYS had net operating loss carryforwards for foreign income tax purposes of approximately $9.8 million. These carryforwards will expire, if not utilized, from fiscal 2008 to 2024 for federal purposes. The Company’s U.S. federal research and development tax credit carryforwards for income tax purposes are approximately $900,000. If not utilized, the federal tax credit carryforwards will expire from fiscal 2020 to 2022. None of the federal net operating loss carryforwards represent the stock option deduction arising from activity under the Company’s stock option plan.

During fiscal 2007, the Company’s valuation allowance decreased by $1.2 million from $9.4 million as of March 31, 2006 to $8.2 million as of March 31, 2007. This was reflected as a reduction in goodwill of $1.0 million, and in income tax expense of $200,000. The change in valuation allowance from fiscal 2006 to fiscal 2007 primarily

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

relates to the expected future taxable income of the Company in certain jurisdictions, together with available tax planning strategies, including the migration of intellectual property rights to lower tax jurisdictions.

During fiscal 2007, IXYS’s deferred tax assets were decreased by the tax benefits associated with the litigation reserve. These benefits, credited directly to income tax expense, amounted to $11.5 million. IXYS evaluates the need for tax contingency reserves at the end of each financial statement reporting period. During the current period, the Company adjusted its tax contingency reserves to $3.8 million related to various tax jurisdictions. IXYS is in the process of implementing tax planning strategies in the form of migrating intellectual property rights to lower tax jurisdictions. This may cause future effective tax rate to fluctuate from year to year. IXYS’s Swiss subsidiary has a tax holiday that expires in 2010. The tax holiday reduced income tax expense by approximately $400,000 in fiscal 2007 and $800,000 in fiscal 2006.

IXYS has made no provision for U.S. income taxes on undistributed earnings of certain foreign subsidiaries because it is the Company’s intention to permanently reinvest such earnings in its foreign subsidiaries. If such earnings were distributed, IXYS would be subject to additional U.S. income tax expense. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable. The deferred tax assets of $27.2 million primarily consist of current tax assets from timing differences between U.S. GAAP and tax laws, net operating losses carryforwards and tax credits carryforwards.

Under the Tax Reform Act of 1986, the amounts of and benefits from net operating loss carryforwards and tax credit carryforwards may be impaired or limited in certain circumstances. Events that may restrict utilization of net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations and continuity of business requirements as defined in Internal Revenue Code Section 382 and similar state provisions. In the event IXYS had a change of ownership, defined as a cumulative ownership change of more than 50% over a three-year period, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.


12.	Computation of Net Income (Loss) per Share:

Basic and diluted earnings per share are calculated as follows (in thousands, except per share amounts):


	Year Ended March 31,
	2007		2006			2005

Basic:
Weighted-average shares		33,505		33,636			33,093

Net income (loss)	$	30,219	$	(6,106	)	$	16,242

Net income (loss) per share	$	0.90	$	(0.18	)	$	0.49

Diluted:
Weighted-average shares		33,505		33,636			33,093
Common equivalent shares from stock options		1,279		—			1,992

Weighted average shares used in diluted per share calculation		34,784		33,636			35,085

Net income (loss)	$	30,219	$	(6,106	)	$	16,242

Net income (loss) per share	$	0.87	$	(0.18	)	$	0.46

In fiscal 2007, there were 1,374,574 outstanding options to purchase shares at a weighted average exercise price of $14.44 that were not included in the computation of dilutive net income per share since the exercise prices of the options exceeded the market price of the common stock. These options could dilute earnings per share in future periods. In fiscal 2006 and fiscal 2005, there were outstanding options to purchase 2,179,943 and

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

619,000 shares at weighted average exercise prices of $11.34 and $19.38, respectively, that were not included in the computation of net income (loss) per share because their effect was anti-dilutive.


13.	Segment and Geographic Information:

IXYS has a single operating segment. This operating segment is comprised of semiconductor products used primarily in power-related applications. While the Company has separate businesses with discrete financial information, the Company has one chief operating decision maker and the businesses are highly integrated and have similar economic characteristics. IXYS’s sales by major geographic area (based on destination) were as follows (in thousands):


	Year Ended March 31,
	2007		2006		2005

United States	$	78,619	$	79,230	$	72,300
Europe and the Middle East
Germany		37,456		29,258		28,821
Italy		7,417		6,247		7,220
United Kingdom		23,288		17,285		15,947
Other		39,911		30,733		33,281
Asia Pacific
Korea		21,060		30,735		49,990
China		30,244		25,014		16,800
Japan		9,420		7,338		6,711
Other		25,008		13,033		13,479
Rest of the World		13,485		12,614		12,071

Total	$	285,908	$	251,487	$	256,620

The following table sets forth the revenues for each of IXYS’s product groups for fiscal 2007, 2006 and 2005(in thousands):


	Year Ended March 31,
	2007		2006		2005

Power semiconductors	$	207,523	$	191,105	$	195,148
Integrated circuits		56,212		41,493		40,759
Systems and RF power semiconductors		22,173		18,889		20,713

Total	$	285,908	$	251,487	$	256,620

During the year ended March 31, 2007 and March 31, 2006, there was no single customer providing more than 10% of IXYS’s net revenues. During the year ended March 31, 2005, sales to one customer represented 11.5% of net revenues.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

IXYS’s foreign operations consist of those of its subsidiaries, IXYS GmbH in Germany, IXYS CH in Switzerland and Westcode in the United Kingdom. At March 31, 2007, all recorded goodwill relates to acquired businesses based in the U.S. The following table summarizes the net revenues, net income (loss) and long-lived assets of IXYS’s domestic and foreign operations (in thousands):


	Year Ended March 31,
	2007		2006			2005

Net revenues:
Foreign	$	129,133	$	98,939		$	99,442
Domestic		156,775		152,548			157,178

	$	285,908	$	251,487		$	256,620

Net income (loss):
Foreign	$	3,278	$	11,900		$	6,504
Domestic		26,941		(18,006	)		9,738

	$	30,219	$	(6,106	)	$	16,242


	March 31,
	2007		2006

Property, plant and equipment, net:
Germany	$	18,495	$	13,154
Switzerland		557		885
Domestic		24,838		21,993
United Kingdom		4,851		4,017

Total property plant and equipment	$	48,741	$	40,049


14.	Subsequent Event:

All American Semiconductor Inc, a distributor of the Company, filed for relief under Chapter 11 of the U.S. Bankruptcy Code in April 2007. The bankruptcy court has approved the sale of substantially all of its tangible assets and a significant part of its intangible assets. The net proceeds from the sale are not expected to pay the outstanding debt. IXYS did not recognize revenues on shipments to All American in the fourth quarter and wrote off amounts due from All American as of March 31, 2007. The total amount written off was $1.3 million.

IXYS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Selected Quarterly Financial Data (unaudited)

Fiscal Year Ended March 31, 2007(1)(2)


	Three Months Ended
	March 31,		December 31,			September 30,		June 30,
	2007		2006			2006		2006
	(In thousands, except per share amounts)

Net revenues	$	74,018	$	72,274		$	71,875	$	67,741
Gross profit		17,850		22,477			22,120		21,884
Operating income		1,389		403			6,188		41,547
Net income	$	2,241	$	(106	)	$	3,788	$	24,296
Net income per share — basic	$	0.07	$	0.00		$	0.11	$	0.71
Net income per share — diluted	$	0.07	$	0.00		$	0.11	$	0.68
Weighted average shares used in per share calculation
Basic		32,659		33,264			33,929		34,172
Diluted		33,923		33,264			35,124		35,575

Fiscal Year Ended March 31, 2006


	Three Months Ended
	March 31,		December 31,			September 30,		June 30,
	2006		2005			2005		2005
	(In thousands, except per share amounts)

Net revenues	$	64,425	$	60,336		$	63,385	$	63,341
Gross profit		20,382		18,937			21,231		21,145
Operating income (loss)		14,246		(46,230	)		7,243		7,732
Net income (loss)	$	30,301	$	(47,090	)	$	5,544	$	5,139
Basic net income (loss) per share applicable to common stockholder	$	0.89	$	(1.40	)	$	0.17	$	0.15
Diluted net income (loss) per share applicable to common stockholder	$	0.85	$	(1.40	)	$	0.16	$	0.14
Weighted average shares used in per share calculation
Basic		34,015		33,593			33,525		33,416
Diluted		35,792		33,593			35,758		35,985


(1)		The Company adopted the provisions of SFAS 123(R) in fiscal 2007. Results for fiscal 2006 do not include the effects of share-based compensation. For further information, see Note 2, “Summary of Significant Accounting Policies” and Note 3, “Employee Equity Incentive Plans” in the Notes to Consolidated Financial Statements.

(2)		IXYS has adjusted the preliminary consolidated financial information for the quarter and year ended March 31, 2007, announced on May 24, 2007, to reflect an increase of $1.5 million in net income. The adjustments were made to reflect changes in estimates relating to the provision for income taxes made in the first quarter and to reverse the accrual of bonuses for the executive officers. As a consequence of these adjustments, the Company’s net income for the quarter ended March 31, 2007 increased to $2.2 million, or $0.07 per share on a diluted basis, and the Company’s net income for fiscal 2007 increased to $30.2 million, or $0.87 per share on a diluted basis.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

Not applicable.


Item 9A.	*Controls and Procedures*

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act) as of March 31, 2007. This evaluation included various processes that were carried out in an effort to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified by the SEC. In this evaluation, the Chief Executive Officer and the Chief Financial Officer considered whether our disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. This evaluation also included consideration of certain aspects of our internal controls and procedures for the preparation of our financial statements. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2007, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2007. In making this assessment, our management used the criteria set forth in Internal Control-Integrated Framework, which was issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has concluded that, as of March 31, 2007, our internal control over financial reporting was effective.

Management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2007 has been audited by BDO Seidman, LLP (“BDO”), an independent registered public accounting firm, as stated in their report, which is included elsewhere herein.

Changes in Internal Control over Financial Reporting

In conducting its assessment of the effectiveness of our internal control over financial reporting as of March 31, 2006, our management concluded that the following material weakness existed as of March 31, 2006: deficiencies in making estimates and judgments about non-routine transactions consistent with accounting principles generally accepted in the United States of America during the closing process.

To remediate the deficiencies in our ability to adequately make estimates and judgments about non-routine transactions, we contractually engaged, on a consulting basis, external resources that possessed sufficient public accounting training and experience to review and consult on specific non-routine accounting matters. These consultants review and provide advice on specific non-routine transactions as they arise. Additionally, our staff routinely documents and presents unexpected and or unusual accounting related events to our Chief Financial Officer and Corporate Controller. These events are reviewed for significance and complexity to determine if the issue or issues warrant involvement from the external consultants.

To enhance our control of segregation of duties, we completed an assessment of all systems users’ roles and responsibilities. Based on this assessment, further changes to roles were made. Specifically, in some divisions, the

ability to enter or modify master data concerning customers or suppliers was removed from individuals with rights to enter sales or purchase orders.

To avoid shipping assets to customers on credit hold, system controls were implemented at several divisions. These system controls are designed to prevent the release of inventory to any customer currently on credit hold as indicated by the credit status field on the customer’s master record.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our procedures or our internal controls will prevent or detect all errors and all fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of our controls can provide absolute assurance that all control issues, errors and instances of fraud, if any, have been detected.

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

To the Board of Directors and Stockholders of IXYS Corporation

We have audited management’s assessment, included in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting,” that IXYS Corporation maintained effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). IXYS Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that IXYS Corporation maintained effective internal control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the COSO criteria. Also in our opinion, IXYS Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of IXYS Corporation as of March 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, comprehensive income (loss), and cash flows for each of the three years in the period ended March 31, 2007 and our report dated June 14, 2007 expressed an unqualified opinion thereon.

BDO Seidman, LLP

San Francisco, California

June 14, 2007


Item 9B.	*Other Information*

Not Applicable

PART III


Item 10.	*Directors and Executive Officers of the Registrant*

The information required by this item, other than with respect to our Code of Ethics, is incorporated by reference to our Proxy Statement for our 2007 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year ended March 31, 2007 (the “2007 Proxy Statement”).

Code of Ethics

We have adopted a Code of Ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics is posted on our website at www.ixys.com under the caption “Investor Relations.”

We intend to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethics by posting such information on our website, at the address and location specified above and, to the extent required by the listing standards of the Nasdaq Stock Market, by filing a Current Report on Form 8-K with the SEC, disclosing such information.


Item 11.	*Executive Compensation*

The information required by this item is incorporated by reference to our 2007 Proxy Statement.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The information required by this item is incorporated by reference to our 2007 Proxy Statement.


Item 13.	*Certain Relationships and Related Transactions and Director Independence*

The information required by this item is incorporated by reference to our 2007 Proxy Statement.


Item 14.	*Principal Accounting Fees and Services*

The information required by this item is incorporated by reference to our 2007 Proxy Statement.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) The following documents are filed as part of this report:

(1) Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of March 31, 2007 and 2006

Consolidated Statements of Operations for the years ended March 31, 2007, 2006 and 2005

Consolidated Statements of Comprehensive Income (Loss) for the years ended March 31, 2007, 2006 and 2005

Consolidated Statements of Stockholders’ Equity for the years ended March 31, 2007, 2006 and 2005

Consolidated Statements of Cash Flows for the years ended March 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

(2) Financial statements schedules. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

(3) Exhibits.


Exhibit			Title

	3	.1	Amended and Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State for the State of Delaware on March 23, 2001 (filed on June 28, 2001 as Exhibit 3.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	3	.2	Amended and Restated Bylaws of the Registrant (filed on November 14, 2002 as Exhibit 3.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.1*	Second Amended Executive Employment Agreement, dated as of February 1, 2004, by and between IXYS Corporation (“IXYS”) and Nathan Zommer (filed on June 14, 2004 as Exhibit 10.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.2	Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March 28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics Co. (filed on June 29, 1998 as Exhibit 10.3 to Amendment No. 1 the Registration Statement on Form S-4 of Paradigm Technology, Inc. (No. 333-57003) and incorporated herein by reference).
	10	.3	Loan Agreement dated June 2, 2005 by and between IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.4	Collateral Agreement dated July 14, 2005 by and among IXYS Corporation, IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.5*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Nathan Zommer (filed on June 28, 2001 as Exhibit 10.7 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.6*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Samuel Kory (filed on June 28, 2001 as Exhibit 10.10 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.7*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Peter Ingram (filed on June 28, 2001 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.8*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and Donald L. Feucht (filed on June 28, 2001 as Exhibit 10.13 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.9*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and S. Joon Lee (filed on June 28, 2001 as Exhibit 10.14 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.10*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Uzi Sasson (filed on February 11, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.11*	Indemnity Agreement, dated August 25, 2006, by and between IXYS and David L. Millstein (filed on August 30, 2007 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.12*	The Paradigm 1994 Stock Option Plan, as amended (filed on February 16, 1999 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.13*	The IXYS 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.14*	The IXYS 1999 Employee Stock Purchase Plan (filed on July 8, 1999 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).


Exhibit			Title

	10	.15*	The IXYS 1999 Non-Employee Directors’ Equity Incentive Plan (filed on July 8, 1999 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.16*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.17*	Form of Restricted Stock Unit Award Agreement for the 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.18*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.19*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.20*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan with net exercise provision (filed on June 22, 2006 as Exhibit 10.23 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.21*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan for non-employee directors (filed on June 22, 2006 as Exhibit 10.24 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.22*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan with net exercise provision (filed on June 22, 2006 as Exhibit 10.25 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.23*	Form of Stock Award (filed on February 14, 2006 as Exhibit 10.5 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.24*	Form of Restricted Stock Unit Award Agreement with Change of Control Vesting (filed on August 30, 2007 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.25*	Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California dated January 31, 2007 by and between Barber Lane Associates LP and IXYS (filed on February 7, 2007 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.26*	Description of elements of compensation of executive officers.
	10	.27*	Summary of outside director compensation.
	21	.1	List of Subsidiaries.
	23	.1	Consent of BDO Seidman, LLP.
	24	.1	Power of Attorney (included on the signature page).
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Commission.
	31	.2	Certification of Chief Financial Officer pursuant to the Rule 13a-14(a) of the Securities and Exchange Commission.
	32	.1	Certification required by Rule 13a-14(b) of the Securities and Exchange Commission and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


*		Management contract or compensation plan or arrangement.

(b) Exhibits. See Item 15(a) (3) above.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

IXYS CORPORATION


	By:	/s/ Nathan Zommer

Nathan Zommer

Chairman of the Board, President and

Chief Executive Officer

(Principal Executive Officer)

Dated: June 14, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Nathan Zommer and Uzi Sasson, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date

/s/ Nathan Zommer Nathan Zommer	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	June 14, 2007

/s/ Uzi Sasson Uzi Sasson	Chief Operating Officer, Chief Financial Officer and Vice President of Finance (Principal Financial Officer and Principal Accounting Officer)	June 14, 2007

/s/ Donald L. Feucht Donald L. Feucht	Director	June 14, 2007

/s/ Samuel Kory Samuel Kory	Director	June 14, 2007

/s/ S. Joon Lee S. Joon Lee	Director	June 14, 2007

Exhibit Index


Exhibit			Title

	3	.1	Amended and Restated Certificate of Incorporation of the Registrant, as filed with the Secretary of State for the State of Delaware on March 23, 2001 (filed on June 28, 2001 as Exhibit 3.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	3	.2	Amended and Restated Bylaws of the Registrant (filed on November 14, 2002 as Exhibit 3.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.1*	Second Amended Executive Employment Agreement, dated as of February 1, 2004, by and between IXYS Corporation (“IXYS”) and Nathan Zommer (filed on June 14, 2004 as Exhibit 10.1 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.2	Wafer Foundry Agreement, dated as of June 21, 1995, as amended on March 28, 1996 and March 13, 1998, by and between IXYS and Samsung Electronics Co. (filed on June 29, 1998 as Exhibit 10.3 to Amendment No. 1 the Registration Statement on Form S-4 of Paradigm Technology, Inc. (No. 333-57003) and incorporated herein by reference).
	10	.3	Loan Agreement dated June 2, 2005 by and between IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.4	Collateral Agreement dated July 14, 2005 by and among IXYS Corporation, IXYS Semiconductor GmbH and IKB Deutsche Industriebank AG (filed on August 12, 2005 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.5*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Nathan Zommer (filed on June 28, 2001 as Exhibit 10.7 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.6*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Samuel Kory (filed on June 28, 2001 as Exhibit 10.10 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.7*	Indemnity Agreement, dated November 20, 1999, by and between IXYS and Peter Ingram (filed on June 28, 2001 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.8*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and Donald L. Feucht (filed on June 28, 2001 as Exhibit 10.13 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.9*	Indemnity Agreement, dated August 4, 2000, by and between IXYS and S. Joon Lee (filed on June 28, 2001 as Exhibit 10.14 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.10*	Indemnity Agreement, dated December 9, 2004, by and between IXYS and Uzi Sasson (filed on February 11, 2005 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.11*	Indemnity Agreement, dated August 25, 2006, by and between IXYS and David L. Millstein (filed on August 30, 2007 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.12*	The Paradigm 1994 Stock Option Plan, as amended (filed on February 16, 1999 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.13*	The IXYS 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.14*	The IXYS 1999 Employee Stock Purchase Plan (filed on July 8, 1999 as Exhibit 10.11 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.15*	The IXYS 1999 Non-Employee Directors’ Equity Incentive Plan (filed on July 8, 1999 as Exhibit 10.12 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.16*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.3 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).


Exhibit			Title

	10	.17*	Form of Restricted Stock Unit Award Agreement for the 1999 Equity Incentive Plan (filed on May 18, 2006 as Exhibit 10.2 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.18*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.19*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan (filed on November 9, 2004 as Exhibit 10.2 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.20*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan with net exercise provision (filed on June 22, 2006 as Exhibit 10.23 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.21*	Form of Stock Option Agreement for the 1999 Equity Incentive Plan for non-employee directors (filed on June 22, 2006 as Exhibit 10.24 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.22*	Form of Stock Option Agreement for the 1999 Non-Employee Directors’ Equity Incentive Plan with net exercise provision (filed on June 22, 2006 as Exhibit 10.25 to the Annual Report on Form 10-K (No. 000-26124) and incorporated herein by reference).
	10	.23*	Form of Stock Award (filed on February 14, 2006 as Exhibit 10.5 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.24*	Form of Restricted Stock Unit Award Agreement with Change of Control Vesting (filed on August 30, 2007 as Exhibit 10.1 to the Current Report on Form 8-K (No. 000-26124) and incorporated herein by reference).
	10	.25*	Agreement for Purchase and Sale of 1590 Buckeye Drive, Milpitas, California dated January 31, 2007 by and between Barber Lane Associates LP and IXYS (filed on February 7, 2007 as Exhibit 10.1 to the Quarterly Report on Form 10-Q (No. 000-26124) and incorporated herein by reference).
	10	.26*	Description of elements of compensation of executive officers.
	10	.27*	Summary of outside director compensation.
	21	.1	List of Subsidiaries.
	23	.1	Consent of BDO Seidman, LLP.
	24	.1	Power of Attorney (included on the signature page).
	31	.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Commission.
	31	.2	Certification of Chief Financial Officer pursuant to the Rule 13a-14(a) of the Securities and Exchange Commission.
	32	.1	Certification required by Rule 13a-14(b) of the Securities and Exchange Commission and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).


*		Management contract or compensation plan or arrangement.


			Page

PART I
	Item 1.	Business		3
	Item 1A.	Risk Factors		12
	Item 1B.	Unresolved Staff Comments		25
	Item 2.	Properties		26
	Item 3.	Legal Proceedings		26
	Item 4.	Submission of Matters to a Vote of Security Holders		28
		Executive Officers of the Registrant		28

PART II
	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
	Item 6.	Selected Financial Data		30
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		45
	Item 8.	Financial Statements and Supplementary Data		47
	Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		85
	Item 9A.	Controls and Procedures		85
	Item 9B.	Other Information		88

PART III
	Item 10.	Directors and Executive Officers of the Registrant		88
	Item 11.	Executive Compensation		88
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		88
	Item 13.	Certain Relationships and Related Transactions and Director Independence		88
	Item 14.	Principal Accounting Fees and Services		88

PART IV
	Item 15.	Exhibits and Financial Statement Schedules		88
EXHIBIT 10.26
EXHIBIT 10.27
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1


Annual Retainer for each Director	$	25,000
Additional Annual Retainer for the Chairman of the Audit Committee	$	7,500
Compensation Committee	$	4,000
Nominating Committee	$	4,000
Director’s Fee for each Board of Directors meeting	$	1,000
Director’s Fee for each Committee meeting	$	600


		Jurisdiction Of
Name		Organization
Clare Canada, Ltd.		Canada
Clare Capital, Inc.		Delaware
Clare Components, Inc.		Delaware
Clare Electronics, Inc.		Delaware
Clare France S.A.R.L.		France
Clare, Inc.		Massachusetts
Clare Instruments, Inc.		Delaware
Clare Micronix Integrated Systems, Inc.		California
Clare N.V.		Belgium
Clare Services, Inc.		Delaware
Clare Systems, Inc.		Delaware
Clare Technologies, Inc.		Delaware
Clare Technologies (Taiwan), Inc.		Taiwan
C.P. Clare Electronics GmbH		Germany
C.P. Clare Foreign Sales Corporation		Delaware
C.P. Clare International N.V.		Netherlands
C.P. Clare Mexicana S.A. de C.V.		Mexico
Directed Energy, Inc.		Colorado
IXYS Berlin GmbH		Germany
IXYS Buckeye, LLC		Delaware
IXYS Caymans L.P.		Cayman Islands B.W.I.
IXYS CH GmbH		Switzerland
IXYS Holdings Ltd.		United Kingdom
IXYS Korea Ltd.		South Korea
IXYS Semiconductor, B.V.		Netherlands
IXYS Semiconductor GmbH		Germany
IXYS Semiconductor, Ltd.		South Korea
IXYS UK Ltd.		United Kingdom
IXYS Unterstuetzungseinrichtung GmbH		Germany
IXYS USA, Inc.		Delaware
Microwave Technology, Inc.		California
Westcode Industries Ltd.		United Kingdom
Westcode Semiconductors, Inc.		California
Westcode Semiconductors, Ltd.		United Kingdom

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ Nathan Zommer
	Nathan Zommer, Chairman of the Board,
	President and Chief Executive Officer



	/s/ Uzi Sasson
	Uzi Sasson, Chief Operating Officer, Chief Financial Officer
	and Vice President of Finance